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Exam 17: Employee Benefits: Retirement Plans

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Question 21

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As Social Security slants benefits in favor of lower-paid workers,the Internal Revenue Service 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.
C) offset.
D) integration.

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Question 22

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Which of the following statements is (are) true with respect to SIMPLE retirement plans? I.Only large employers can start a SIMPLE plan,provided the employer does not maintain another qualified plan. II.SIMPLE plans are exempt from most nondiscrimination and administrative rules that apply to qualified plans.

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

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Question 23

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

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.

Under one type of retirement plan for small businesses,the employer contributes to an IRA established for each eligible employee.Under this type of plan,the contribution limits are significantly higher than they are for traditional IRAs and Roths IRAs.What is this type of plan,which requires little paperwork,called?

Small business owners have a number of retirement savings options.One type of plan is limited to self-employed individuals and business owners who have no employees other than a spouse.The plan combines a profit-sharing plan with deferral of salary.Such plans are called

All of the following statements about Section 401(k) plans are correct EXCEPT

Under a 401(k) plan,how is it determined if the plan unfairly discriminates in favor of highly compensated employees?

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

Which of the following requirements must be met by a top-heavy pension plan to retain its qualified status? I.A special rapid vesting schedule must be used for non-key employees. II.Certain minimum benefits or contributions must be provided for non-key employees.

All of the following statements about various types of pension plans are true EXCEPT

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.

All of the following statements about tax implications of qualified pension plans are correct EXCEPT

JKL Company just converted its traditional defined-benefit plan to another type of plan.Under the plan,benefits are defined in terms of a hypothetical account balance,with retirement benefits dependent upon the value of the participant's account at retirement.Each year,employees receive an interest rate credit and a pay credit which is a specified percentage of compensation.This type of plan is called a(n)

Rita went to work for a manufacturing company.The company offers a defined-benefit pension plan.The benefit at retirement is equal to 1.5 percent multiplied by years of service with the company,with the result multiplied by average salary in the three highest consecutive years of paid employment with the company.The benefit formula used at Rita's company is a

Which of the following statements about Keogh plans is correct?

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 additional 20 percent vested in each of the next 4 years.

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

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.

Many future retirees lost a significant share of their 401(k) plan balances during the economic downturn during 2008 and early 2009.To reduce the chance of a significant reduction in your 401(k) account balance as you near retirement,financial planners suggest that you should