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 A) prorating. B) indexing. […]
ACME Company is considering starting a retirement plan for its employees. One option ACME is considering is a profit-sharing plan. All of the following are advantages of this type of retirement plan EXCEPT A) The employer’s cost is not affected by the age and the number of employees. B) Profit sharing plans provide an incentive […]
) 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 […]
Special vesting rules apply to qualified defined contribution plans with voluntary employee contributions and matching employer contributions. Which of the following statements is (are) true with respect to these vesting rules? I. Employer contributions must vest immediately. II. Graded vesting is permitted, and employer contributions must be 20 percent vested after 2 years, with an […]
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. A) I only B) II only C) both I and II D) neither I nor II ANSWER […]
A financial institution that provides for the accumulation or administration of the funds that will be used to pay pension benefits is called a A) trust fund. B) mutual fund. C) funding instrument. D) funding agency. ANSWER Answer: D
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. A) I only B) II only C) both I and II D) neither I nor II ANSWER Answer: […]
Which of the following statements about pension funding agencies and funding instruments is true? 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, […]
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. A) I only B) II only C) […]
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. A) I only B) II only C) both I and II D) neither I nor II ANSWER Answer: A
