RPA 1 Exam Questions and Answers (Graded A)

Basic economic problems facing the aged: - Answer- (a) The desire to maintain, to a high degree, their preretirement standard of living in their retirement years (b) The declining employment opportunity available to the aged (c) The relatively low individual savings of the aged because of higher income taxes, increased consumption patterns, inflation pressures in the recent past and other factors (d) The improvement in longevity experienced during the 20th century; Reasons for the withdrawal of the aged from the labor force: - Answer- (a) Many older workers want to retire and do so voluntarily (b) Many individuals are physically unable to perform work duties as efficiently as they could at younger ages (c) Industrial and technological advances operate to the disadvantage of older persons. (d) Though created to alleviate the financial risk associated with excessive longevity, the OASDHI program and private retirement plans have tended to institutionalize age 65 as the "normal retirement age"; Impetus for growth of private retirement plans: - Answer- (a) the increased productivity and morale of the employee group when a formal retirement plan is offered (b) tax considerations, especially the significant tax advantages associated with qualified retirement plans (c) wage stabilization programs enacted during WWII that limited higher wages but allowed establishing benefit programs including retirement plans (d) pressures from unions for additional and expanded fringe benefit programs (e) the necessity of business firms to offer employer retirement plans in order to attract and retain qualified human resources in a competitive labor market (f) the desire of employers to reward employees for long periods of service (g) the efficiency of the formal group savings approach in providing economic security for the aged (h) the sales efforts of funding agencies such as insurance companies, bank trust departments, corporate trustees and mutual funds; Courses of action the employer has if an employee can no longer meet the requirements of the job: - Answer- (a) terminate the employee (b) retain the employee in the same position at the same salary (c) retain the employee, but move him to a less demanding position at the same or lessor salary (d) create a retirement plan; Principal tax advantages possessed by qualified retirements plans: - Answer- ;(a) employer contributions (within prescribed limits) can be deducted as a business expense (b) investment income earned on retirement plan assets is tax-deferred (c) there is no current income taxation to the employee on employer contributions to the retirement fund made on the employee's behalf (d) an employee may be in a lower income tax bracket when income distributions are received (e) under limited circumstances, distributions from retirement plans may be taxed on a favorable basis; business expediency - Answer- the establishment of plans (early retirement) was viewed as a a management prerogative and the primary motivation for the creation of plans was the economic benefit, direct or indirect, that accrued to the employer.; Arguments presented by those opposed to the deferred wage concept: - Answer- (a) some employers that pay the prevailing cash wage rate also provide a retirement benefit. The retirement benefit is offered in addition to, rather than in lieu of, a cash wage increase (b) the concept ignores the possible argument that the employer willingly accepts a lower profit margin to provide a retirement plan to it's employees (c) if retirement benefits are a type of wage, then terminated employees should be entitled to the part of the benefit that has been earned to the date of termination (only a small # provide for full and immediate vesting); Major results of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) on the design process for private retirement funds: - Answer- reduced the maximum limits of retirement benefits and contributions brought parity between corporate plans and plans for self-employed introduced special restrictions on plans considered "top-heavy"; Tax Reform Act of 1986 (TRA '86) - Answer- represented the most pervasive changes to retirement plans since ERISA imposed new coverage tests and accelerated vesting requirements changed the rules under which plans could be integrated with Social Security lowered limits for retirement benefits that begin before age 65 changed the timing and taxation of plan distributions terminated IRA deductions for many qualified plan participants changes were also made with respect to employee stock ownership plans and executive compensation; Key changes by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) made to retirement plans: - Answer- (a) increased contribution, benefit and deduction limits for all retirement savings vehicles (b) provided business credits for the start-up of retirement plans (c) provided tax credits to lower and middle-income employees making contributions to retirement plans (d) created greater parity among corporate, nonprofit and governmental plans (e) created greater contribution limits permitted for retirement plan participants who were aged 50 and over (f) created a new provision to allow certain retirement plans to incorporate a feature called a "qualified Roth contribution program" (g) allowed greater portability for all types of retirement programs by providing for easier rollover of distributions bw various types of plans;