RETIREMENT PLANNING - MODULE 2
QUESTIONS AND VERIFIED
ANSWERS|100% CORRECT|GRADE A+
Dan, age 54, is the sole owner of his company. His company is now experiencing considerable financial
success, but he remembers the past when the company really struggled. Consequently he would like any
new retirement plan to be backed by the PBGC. Which of these types of retirement plans are backed by
the PBGC? - ANSWER Defined benefit plan
Assume a company's goal is to maximize retirement benefits to the highly compensated employees, who
also happen to be the oldest employees. Which of the following best accomplishes this goal if the
company is installing a new plan? - ANSWER A defined benefit pension plan
Which of the following statements is CORRECT in describing the effects of actuarial methods or
assumptions on contributions to a defined benefit pension plan? - ANSWER The higher the turnover rate
assumed by the actuary, the lower the required employer contribution for the year.
This year, its pension actuary informed Gear-It-Up Bicycles, Inc., that its required annual contribution to
the company defined benefit pension plan needs to be significantly higher than last year. Which of the
following factors could be responsible for this increase in annual contributions? - ANSWER Lower-than-
expected earnings on plan investments
An increase in which of the following factors will increase plan costs for a defined benefit pension plan? -
ANSWER Life expectancies
ERISA requires reporting and disclosure of defined benefit plan information to - ANSWER plan
participants.
Great Benx Corporation provides both a defined benefit plan and a money purchase plan for its
employees. The defined benefit plan is covered by the PBGC. All employees participate in each plan. If
the Section 415 limits apply, how do they pertain to this plan? - ANSWER The Section 415 limits are
applied separately for each plan. The annual additions limit for the money purchase plan in 2022 is 100%
of the participant's compensation or $61,000, whichever is less. The participant's benefit in the defined
benefit plan is limited in 2022 to 100% of the participant's compensation or $245,000, whichever is less.
, Joe, age 52, has owned his company for 18 years and wishes to retire at age 70. All of Joe's employees
are older than he is and have an average length of service with the company of eight years. Joe would
like to adopt a qualified retirement plan that would favor him and reward employees who have rendered
long service. Joe has selected a traditional defined benefit pension plan with a unit benefit formula.
Which of the following statements regarding Joe's traditional defined benefit pension plan is CORRECT? -
ANSWER A traditional defined benefit plan with a unit benefit formula will maximize Joe's benefits and
reward long-term employees based on years of service.
Fernando, age 45, participates in his employer's defined benefit pension plan. This plan provides for a
retirement benefit of 2% of earnings for each year of service with the company and, given Fernando's
projected service of 20 years, will provide him with a benefit of 40% of final average pay at age 65. What
type of benefit formula is this plan using? - ANSWER A unit benefit formula
Three common formulas for determining annual retirement benefits from a defined benefit plan include
all of the following except - ANSWER the dollar percentage matrix.
Which of the following is correct about how the performance of a given variable will impact the
employer costs and thus the contribution to a defined benefit plan? - ANSWER If mortality is greater
than expected, the employer contribution will decease.
Which of the following is a defined benefit pension plan that promises a benefit based on a hypothetical
account balance versus a traditional defined benefit pension plan, which promises a monthly retirement
benefit for life? - ANSWER Cash balance pension plan
Which of the following is CORRECT about contributions made to a cash balance pension plan? - ANSWER
All contributions are made by the employer.
Which of the following statements is a disadvantage for the employer-sponsor of a cash balance pension
plan? - ANSWER Retirement benefits may be inadequate for older plan entrants.
Tax implications of cash balance pension plans include which of these?
Employer contributions on behalf of employees grow tax deferred.
Employer contributions to the plan are deductible when made.
QUESTIONS AND VERIFIED
ANSWERS|100% CORRECT|GRADE A+
Dan, age 54, is the sole owner of his company. His company is now experiencing considerable financial
success, but he remembers the past when the company really struggled. Consequently he would like any
new retirement plan to be backed by the PBGC. Which of these types of retirement plans are backed by
the PBGC? - ANSWER Defined benefit plan
Assume a company's goal is to maximize retirement benefits to the highly compensated employees, who
also happen to be the oldest employees. Which of the following best accomplishes this goal if the
company is installing a new plan? - ANSWER A defined benefit pension plan
Which of the following statements is CORRECT in describing the effects of actuarial methods or
assumptions on contributions to a defined benefit pension plan? - ANSWER The higher the turnover rate
assumed by the actuary, the lower the required employer contribution for the year.
This year, its pension actuary informed Gear-It-Up Bicycles, Inc., that its required annual contribution to
the company defined benefit pension plan needs to be significantly higher than last year. Which of the
following factors could be responsible for this increase in annual contributions? - ANSWER Lower-than-
expected earnings on plan investments
An increase in which of the following factors will increase plan costs for a defined benefit pension plan? -
ANSWER Life expectancies
ERISA requires reporting and disclosure of defined benefit plan information to - ANSWER plan
participants.
Great Benx Corporation provides both a defined benefit plan and a money purchase plan for its
employees. The defined benefit plan is covered by the PBGC. All employees participate in each plan. If
the Section 415 limits apply, how do they pertain to this plan? - ANSWER The Section 415 limits are
applied separately for each plan. The annual additions limit for the money purchase plan in 2022 is 100%
of the participant's compensation or $61,000, whichever is less. The participant's benefit in the defined
benefit plan is limited in 2022 to 100% of the participant's compensation or $245,000, whichever is less.
, Joe, age 52, has owned his company for 18 years and wishes to retire at age 70. All of Joe's employees
are older than he is and have an average length of service with the company of eight years. Joe would
like to adopt a qualified retirement plan that would favor him and reward employees who have rendered
long service. Joe has selected a traditional defined benefit pension plan with a unit benefit formula.
Which of the following statements regarding Joe's traditional defined benefit pension plan is CORRECT? -
ANSWER A traditional defined benefit plan with a unit benefit formula will maximize Joe's benefits and
reward long-term employees based on years of service.
Fernando, age 45, participates in his employer's defined benefit pension plan. This plan provides for a
retirement benefit of 2% of earnings for each year of service with the company and, given Fernando's
projected service of 20 years, will provide him with a benefit of 40% of final average pay at age 65. What
type of benefit formula is this plan using? - ANSWER A unit benefit formula
Three common formulas for determining annual retirement benefits from a defined benefit plan include
all of the following except - ANSWER the dollar percentage matrix.
Which of the following is correct about how the performance of a given variable will impact the
employer costs and thus the contribution to a defined benefit plan? - ANSWER If mortality is greater
than expected, the employer contribution will decease.
Which of the following is a defined benefit pension plan that promises a benefit based on a hypothetical
account balance versus a traditional defined benefit pension plan, which promises a monthly retirement
benefit for life? - ANSWER Cash balance pension plan
Which of the following is CORRECT about contributions made to a cash balance pension plan? - ANSWER
All contributions are made by the employer.
Which of the following statements is a disadvantage for the employer-sponsor of a cash balance pension
plan? - ANSWER Retirement benefits may be inadequate for older plan entrants.
Tax implications of cash balance pension plans include which of these?
Employer contributions on behalf of employees grow tax deferred.
Employer contributions to the plan are deductible when made.
