CEBS GBA 2 Directing Benefits Programs Part 2 Exam | Comprehensive
Practice Questions, Correct Answers & Detailed Rationales
(2026/2027)
Question 1
What is the primary defining characteristic of a Defined Benefit (DB)
pension plan regarding financial risk and benefit delivery?
• A. The employer bears the investment and actuarial risk,
promising a specified retirement benefit formula based on salary
and service regardless of fund performance.
• B. The employee bears 100% of the investment risk through
individual brokerage accounts.
• C. Benefits fluctuate daily based on the closing price of the
Standard & Poor's 500 index.
• D. The plan provides zero guaranteed income upon retirement.
Correct Answer: A. The employer bears the investment and actuarial
risk, promising a specified retirement benefit formula based on salary
and service regardless of fund performance.
Detailed Rationale: In a Defined Benefit plan, the sponsor guarantees a
specific monthly retirement benefit calculated via a formula (e.g., final
average pay multiplied by years of service), making the employer
responsible for funding shortfalls resulting from poor investment
returns or longevity trends.
Question 2
,How does a Defined Contribution (DC) retirement plan fundamentally
differ from a Defined Benefit plan regarding risk allocation?
• A. The employer guarantees a fixed monthly payout for life.
• B. The participant bears the investment risk, and the final
retirement benefit depends entirely on total contributions and
investment performance.
• C. The federal government guarantees all portfolio gains.
• D. Employees are legally prohibited from contributing personal
salary.
Correct Answer: B. The participant bears the investment risk, and the
final retirement benefit depends entirely on total contributions and
investment performance.
Detailed Rationale: In DC plans (such as 401(k)s), contributions are
defined, but the ultimate retirement income depends on market
performance and investment choices made by the individual
participant, shifting financial risk away from the employer.
Question 3
Under the Employee Retirement Income Security Act (ERISA), what are
the statutory minimum vesting schedules permitted for employer-
matching contributions in a defined contribution plan?
• A. 3-year cliff vesting OR 2-to-6 year graded vesting.
• B. 10-year cliff vesting exclusively.
• C. Immediate 100% vesting with zero waiting periods allowed.
• D. 7-year cliff vesting OR 5-to-20 year graded vesting.
,Correct Answer: A. 3-year cliff vesting OR 2-to-6 year graded vesting.
Detailed Rationale: ERISA and subsequent tax law reforms set
maximum vesting schedules for employer matching contributions,
requiring either full vesting after 3 years of service (cliff) or incremental
vesting ranging from 2 to 6 years (graded).
Question 4
What distinguishes a "Cash Balance" plan from a traditional Defined
Benefit pension plan?
• A. Cash balance plans are defined contribution plans funded
exclusively by employee payroll taxes.
• B. Cash balance plans are defined benefit plans where participants
accumulate a hypothetical account balance expressed as a lump-
sum amount, receiving annual pay credits and interest credits.
• C. Cash balance plans prohibit any employer contributions.
• D. Cash balance plans provide zero death benefits under any
circumstance.
Correct Answer: B. Cash balance plans are defined benefit plans where
participants accumulate a hypothetical account balance expressed as a
lump-sum amount, receiving annual pay credits and interest credits.
Detailed Rationale: Although technically a defined benefit plan
governed by DB rules, a cash balance plan frames benefits like a defined
contribution account with hypothetical balances, making it more
understandable to younger mobile workforces.
Question 5
, What is the primary statutory purpose of the Pension Benefit Guaranty
Corporation (PBGC)?
• A. To insure private-sector defined benefit pension plans against
catastrophic failure, guaranteeing the payment of basic pension
benefits to participants if a plan terminates with insufficient
assets.
• B. To provide individual stock market tips to corporate executives.
• C. To audit corporate tax returns for manufacturing plants.
• D. To regulate mutual fund management fees.
Correct Answer: A. To insure private-sector defined benefit pension
plans against catastrophic failure, guaranteeing the payment of basic
pension benefits to participants if a plan terminates with insufficient
assets.
Detailed Rationale: Created by ERISA, the PBGC acts as a federal
insurance program protecting defined benefit pension plan participants
from losing earned retirement benefits due to employer bankruptcy or
plan termination.
Question 6
Under IRS regulations, what are the primary contribution limits for a
Section 401(k) plan regarding employee pre-tax/Roth elective deferrals
and catch-up contributions for older workers?
• A. Elective deferral limits and age-based catch-up contribution
limits established annually by IRS cost-of-living adjustments.
• B. A flat lifetime maximum contribution limit of $10,000.
Practice Questions, Correct Answers & Detailed Rationales
(2026/2027)
Question 1
What is the primary defining characteristic of a Defined Benefit (DB)
pension plan regarding financial risk and benefit delivery?
• A. The employer bears the investment and actuarial risk,
promising a specified retirement benefit formula based on salary
and service regardless of fund performance.
• B. The employee bears 100% of the investment risk through
individual brokerage accounts.
• C. Benefits fluctuate daily based on the closing price of the
Standard & Poor's 500 index.
• D. The plan provides zero guaranteed income upon retirement.
Correct Answer: A. The employer bears the investment and actuarial
risk, promising a specified retirement benefit formula based on salary
and service regardless of fund performance.
Detailed Rationale: In a Defined Benefit plan, the sponsor guarantees a
specific monthly retirement benefit calculated via a formula (e.g., final
average pay multiplied by years of service), making the employer
responsible for funding shortfalls resulting from poor investment
returns or longevity trends.
Question 2
,How does a Defined Contribution (DC) retirement plan fundamentally
differ from a Defined Benefit plan regarding risk allocation?
• A. The employer guarantees a fixed monthly payout for life.
• B. The participant bears the investment risk, and the final
retirement benefit depends entirely on total contributions and
investment performance.
• C. The federal government guarantees all portfolio gains.
• D. Employees are legally prohibited from contributing personal
salary.
Correct Answer: B. The participant bears the investment risk, and the
final retirement benefit depends entirely on total contributions and
investment performance.
Detailed Rationale: In DC plans (such as 401(k)s), contributions are
defined, but the ultimate retirement income depends on market
performance and investment choices made by the individual
participant, shifting financial risk away from the employer.
Question 3
Under the Employee Retirement Income Security Act (ERISA), what are
the statutory minimum vesting schedules permitted for employer-
matching contributions in a defined contribution plan?
• A. 3-year cliff vesting OR 2-to-6 year graded vesting.
• B. 10-year cliff vesting exclusively.
• C. Immediate 100% vesting with zero waiting periods allowed.
• D. 7-year cliff vesting OR 5-to-20 year graded vesting.
,Correct Answer: A. 3-year cliff vesting OR 2-to-6 year graded vesting.
Detailed Rationale: ERISA and subsequent tax law reforms set
maximum vesting schedules for employer matching contributions,
requiring either full vesting after 3 years of service (cliff) or incremental
vesting ranging from 2 to 6 years (graded).
Question 4
What distinguishes a "Cash Balance" plan from a traditional Defined
Benefit pension plan?
• A. Cash balance plans are defined contribution plans funded
exclusively by employee payroll taxes.
• B. Cash balance plans are defined benefit plans where participants
accumulate a hypothetical account balance expressed as a lump-
sum amount, receiving annual pay credits and interest credits.
• C. Cash balance plans prohibit any employer contributions.
• D. Cash balance plans provide zero death benefits under any
circumstance.
Correct Answer: B. Cash balance plans are defined benefit plans where
participants accumulate a hypothetical account balance expressed as a
lump-sum amount, receiving annual pay credits and interest credits.
Detailed Rationale: Although technically a defined benefit plan
governed by DB rules, a cash balance plan frames benefits like a defined
contribution account with hypothetical balances, making it more
understandable to younger mobile workforces.
Question 5
, What is the primary statutory purpose of the Pension Benefit Guaranty
Corporation (PBGC)?
• A. To insure private-sector defined benefit pension plans against
catastrophic failure, guaranteeing the payment of basic pension
benefits to participants if a plan terminates with insufficient
assets.
• B. To provide individual stock market tips to corporate executives.
• C. To audit corporate tax returns for manufacturing plants.
• D. To regulate mutual fund management fees.
Correct Answer: A. To insure private-sector defined benefit pension
plans against catastrophic failure, guaranteeing the payment of basic
pension benefits to participants if a plan terminates with insufficient
assets.
Detailed Rationale: Created by ERISA, the PBGC acts as a federal
insurance program protecting defined benefit pension plan participants
from losing earned retirement benefits due to employer bankruptcy or
plan termination.
Question 6
Under IRS regulations, what are the primary contribution limits for a
Section 401(k) plan regarding employee pre-tax/Roth elective deferrals
and catch-up contributions for older workers?
• A. Elective deferral limits and age-based catch-up contribution
limits established annually by IRS cost-of-living adjustments.
• B. A flat lifetime maximum contribution limit of $10,000.
