Question 1

Which of the following statements about the tax implications of qualified pension plans is true?

Accepted Answer

A)  Investment income on plan assets is taxable in the year the investment income is earned. 
B)  Employer contributions are deductible up to certain limits as an ordinary business expense. 
C)  Employer contributions are considered taxable income to employees but are taxed at capital gains rates. 
D)  Distributions from qualified pension plans are received tax-free by the retiree.

Question 2

Which of the following statements about retirement benefits under pension plans is true?

Accepted Answer

A)  Under a flat percentage of annual earnings defined benefit formula, each employee receives the same dollar benefit. 
B)  A benefit using final pay is usually based on an employee's earnings during the last month of plan participation. 
C)  A unit-benefit formula considers both earnings and years of service. 
D)  Past service benefits are the result of bonuses and overtime pay during the period an employee participated in the plan.

Question 3

Which of the following statements about Section 401(k) plans is true?

Accepted Answer

A)  Elective salary deferrals to these plans are free of federal income taxation until the funds are actually withdrawn. 
B)  These plans are exempt from rules that prevent discrimination in favor of highly compensated employees. 
C)  There is no limit on the actual percentage of salary that can be deferred by highly compensated employees under a qualified plan. 
D)  If an employee takes the funds made available to him or her in cash, the money received is not taxable.

Question 4

Under a unit-benefit formula, benefits are a function of both

Accepted Answer

A)  earnings and years of service. 
B)  age and earnings. 
C)  age and gender. 
D)  years of service and position within a firm.

Question 5

Vesting refers to

Accepted Answer

A)  the employer's right to terminate contributions if a pension plan is adequately funded. 
B)  the employer's right to recapture employee contributions to a pension plan if employment terminates prior to retirement. 
C)  the employee's right to the employer's contributions or benefits attributable to the contributions if employment terminates prior to retirement. 
D)  the employer's right to discriminate against non-highly compensated employees when determining pension benefit levels.

Question 6

All of the following are potential disadvantages to employees covered by a money-purchase pension plan EXCEPT

Accepted Answer

A)  The contribution rate by the employer is uncertain. 
B)  The retirement benefit can only be estimated in advance of retirement. 
C)  The benefit formula may produce an inadequate benefit if an employee enters the plan at an older age. 
D)  The investment losses are borne by the employees.

Question 7

Early distributions from qualified retirement plans are assessed a 10 percent penalty. However, there are some exceptions to this rule. All of the following distributions are exempt from the penalty tax EXCEPT

Accepted Answer

A)  lump-sum distributions made after age 59.5. 
B)  lump-sum distributions made directly to the employee at any age when he or she changes employers. 
C)  lump-sum distributions made after the death or permanent disability of the employee. 
D)  distributions that are part of a series of substantially equal payments over the worker's life expectancy.

Question 8

Which of the following statements concerning defined benefit and defined contribution pension plans is (are) true?
I.The employer bears the investment risk with a defined contribution plan.
II.Defined benefit plans favor workers who enter the plan at older ages.

Accepted Answer

A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II

Question 9

Which of the following statements about withdrawals from Section 401(k) plans is (are) true?
I.The penalty tax does not apply to hardship withdrawals.
II.Withdrawals may be made without penalty at age 59.5 or older.

Accepted Answer

A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II

Question 10

Which of the following statements is (are) true with respect to vesting under a qualified retirement plan?
I.Vesting helps to reduce labor turnover.
II.An employee who terminates employment after four years of service has no vested retirement benefit under cliff vesting.

Accepted Answer

A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II

Exam 17: Employee Benefits: Retirement Plans

Which of the following statements about the tax implications of qualified pension plans is true?

Which of the following statements about retirement benefits under pension plans is true?

Which of the following statements about Section 401(k) plans is true?

Under a unit-benefit formula, benefits are a function of both

Vesting refers to

All of the following are potential disadvantages to employees covered by a money-purchase pension plan EXCEPT

Early distributions from qualified retirement plans are assessed a 10 percent penalty. However, there are some exceptions to this rule. All of the following distributions are exempt from the penalty tax EXCEPT

Which of the following statements concerning defined benefit and defined contribution pension plans is (are) true? I.The employer bears the investment risk with a defined contribution plan. II.Defined benefit plans favor workers who enter the plan at older ages.

Which of the following statements about withdrawals from Section 401(k) plans is (are) true? I.The penalty tax does not apply to hardship withdrawals. II.Withdrawals may be made without penalty at age 59.5 or older.

Which of the following statements is (are) true with respect to vesting under a qualified retirement plan? I.Vesting helps to reduce labor turnover. II.An employee who terminates employment after four years of service has no vested retirement benefit under cliff vesting.