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Question 1
Free
Multiple Choice

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

Choose correct answer/s
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.

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Question 2
Free
Multiple Choice

Beta Corporation has 1,000 employees eligible to participate in the firm's pension plan, and 100 of these employees are considered highly compensated. All of the highly compensated employees are covered by the plan. What is the minimum number of the 900 non-highly compensated employees who must be covered by the plan in order for the plan to satisfy the ratio percentage test?

Choose correct answer/s
A

500

B

630

C

667

D

900

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Question 3
Free
Multiple Choice

What are the minimum age and service requirements that can be imposed on employees eligible to participate in a retirement plan?

Choose correct answer/s
A

age 18 and 6 months of service

B

age 21 and 1 year of service

C

age 21 and 3 years of service

D

age 25 and 4 years of service

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Question 4
Free
Multiple Choice

Which of the following statements about retirement ages in defined benefit pension plans is (are) true?
I)The normal retirement age in most plans is 65.
II)For a defined benefit plan, the early retirement age is the earliest age an employee can retire with full, unreduced benefits.

Choose correct answer/s
A

I only

B

II only

C

both I and II

D

neither I nor II

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Question 5
Free
Multiple Choice

Which of the following statements concerning defined-benefit pension plans is (are) true?
I)The contribution rate by the employer varies from year to year.
II) The retirement benefit is not known in advance.

Choose correct answer/s
A

I only

B

II only

C

both I and II

D

neither I nor II

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Question 6
Multiple Choice

Which of the following statements concerning defined contribution pension plans is (are) true?
I)The contribution rate is fixed.
II) The retirement benefit varies.

Choose correct answer/s
A
I only
B
II only
C
both I and II
D
neither I nor II
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Question 7
Multiple Choice

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

Choose correct answer/s
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.
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Question 8
Multiple Choice

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

Choose correct answer/s
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.
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Question 9
Multiple Choice

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

Choose correct answer/s
A
earnings and years of service.
B
age and earnings.
C
age and gender.
D
years of service and position within a firm.
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Question 10
Multiple Choice

Vesting refers to

Choose correct answer/s
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.
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Question 11
Multiple Choice

Which of the following statements about the minimum vesting standards for a qualified defined benefit plan is (are) true?
I)Under cliff vesting, an employee must be at least 50 percent vested after 5 years of service.
II)Under graded vesting, an employee must be at least 20 percent vested after 3 years of service and 100 percent vested after 7 years.

Choose correct answer/s
A
I only
B
II only
C
both I and II
D
neither I nor II
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Question 12
Multiple Choice

Which of the following statements about the protection provided by the Pension Benefit Guaranty Corporation is (are) true?
I)Only defined benefit plans are insured.
II)Only benefits that are not yet vested are guaranteed.

Choose correct answer/s
A
I only
B
II only
C
both I and II
D
neither I nor II
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Question 13
Multiple Choice

Which of the following distributions from a qualified retirement plan would be exempt from the 10 percent penalty tax if the distribution occurred before the covered employee was age 59.5?
I)A distribution made to an employee with a qualifying disability.
II)A distribution made to a beneficiary or to the employee estate's after the employee's death.

Choose correct answer/s
A
I only
B
II only
C
both I and II
D
neither I nor II
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Question 14
Multiple Choice

As Social Security slants benefits in favor of lower-paid workers, the Internal Revenue Code permits employers to adjust pension contributions so that the overall contributions (pension plus Social Security) are nondiscriminatory. This adjustment permits employers to increase pension contributions for highly-compensated employees. Adjusting contributions to consider Social Security contributions is called

Choose correct answer/s
A
prorating.
B
indexing.
C
offset.
D
integration.
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Question 15
Multiple Choice

For a long-term employee who is covered by a defined benefit plan, the highest retirement income will be obtained if his/her retirement income is based on

Choose correct answer/s
A
initial average pay.
B
random year annual pay.
C
career-average pay.
D
final average pay.
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Question 16
Multiple Choice

A financial institution that provides for the accumulation or administration of the funds that will be used to pay pension benefits is called a

Choose correct answer/s
A
trust fund.
B
mutual fund.
C
funding instrument.
D
funding agency.
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Question 17
Multiple Choice

Which of the following statements about pension funding agencies and funding instruments is true?

Choose correct answer/s
A
Under a trust-fund plan, individual annuities are purchased each year for employees participating in the plan.
B
A separate investment account is a group pension account with a life insurance company.
C
If the funding instrument is a commercial bank, the plan is called an insured plan.
D
Under a guaranteed investment contract, the insurer guarantees the principal of a lump sum deposit but does not guarantee the interest rate.
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Question 18
Multiple Choice

Which of the following statements about trust fund plans is (are) true?
I)The trustee typically purchases annuities for retiring employees.
II)The trustee guarantees the adequacy of the fund to pay the promised benefits.

Choose correct answer/s
A
I only
B
II only
C
both I and II
D
neither I nor II
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Question 19
Multiple Choice

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

Choose correct answer/s
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.
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Question 20
Multiple Choice

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.

Choose correct answer/s
A
I only
B
II only
C
both I and II
D
neither I nor II
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