Chapter 04 – Employer-Sponsored Retirement Plans
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Chapter 04
Employer-Sponsored Retirement Plans
True / False Questions
1. Vesting rights focus on employer contributions. (Qualified Plans)
2. Forfeitures come from the accounts of employees who terminate their employment prior to
earning vesting rights. (Defined Contribution Plans)
3. The Revenue Act of 1921 led to the increase in discretionary benefits such as
pensions. (Origins of Employer-Sponsored Retirement Benefits)
4. Public organizations may offer both 40l(k) and 403(b) plans, but private tax-exempt
organizations are prohibited from offering 401(k) plans. (Section 403(b) Tax-Deferred Annuity
Plans)
5. The current tax treatment provides incentives only to employers to participate in retirement
plans. (Origins of Employer-Sponsored Retirement Benefits)
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6. IRC Section 403(b) established the tax-deferred annuity program as a qualified contribution
plan under ERISA guidelines. (Section 403(b) Tax-Deferred Annuity Plans)
7. Wearaway occurs whenever benefits accrue at a substantially higher rate during the years
close to an employee’s eligibility to earn retirement benefits. (Converting Defined Benefit Plans
to Cash Balance Plans)
8. A qualified preretirement survivor annuity (QPSA) is an annuity for the life of the
participant, with a survivor annuity for the participant’s spouse. (Qualified Plans)
9. Accrual rules specify the rate participants can accumulate benefits. (Qualified Plans)
10. Section 457 Plans are nonqualified retirement plans for government employees. (Section
457 Plans)
11. Using the unit benefit formula, the annual benefits are based on age, years of service and
final average wages or salary. (Defined Benefit Plans)
12. Qualified plans entitle employers and employees to substantial tax benefits not offered
nonqualified plans. (Introduction)
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13. In nonleveraged ESOPs, the company borrows money from a financial institution to
purchase company stock. (Employee Stock Option Plans (ESOPs))
14. Savings Incentive Match Plans for Employees (SIMPLEs) can be either leveraged or
nonleveraged. (Savings Incentive Match Plans for Employees (SIMPLEs))
15. According to the US Department of the Treasury, qualified retirement plans must cover at
least 50 employees or at least 40% of the employer’s workforce. (Qualified Plans)
16. The major distinction between the unit and flat defined benefit formulas is the use of the
employee’s years of service. (Defined Benefit Plans)
17. Usually, cash balance plans are less costly to employers than defined benefit plans. (Cash
Balance Plans and Pension Equity Plans)
18. Nearly 55% of workers employed in the private sector participated in some form of
retirement plan in 2011. (Trends in Retirement Plan Coverage Costs)
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19. Part time workers are employed to save on costs of benefits. (Trends in Retirement Plan
Coverage Costs)
20. Similar numbers of union and nonunion workers had access to a retirement plans as of
2011. (Trends in Retirement Plan Coverage Costs)
21. Defined contribution plans are costlier for employers than defined benefit plans. (Defined
Contribution Plans)
22. Employees can participate in pension plans after they have reached the age of 25 (Qualified
Plans)
23. Pension plans do not automatically fulfill the nondiscrimination requirement if they fall in
safe harbors. (Qualified Plans)
24. Plan termination rules apply and procedures apply to all types of pension plans. (Qualified
Plans)
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25. The present value of benefits based on a designated date is known as accumulated benefit
obligation. (Defined Benefit Plans)
26. The Tent Circuit Court ruled in Tomlinson et al. vs. El Paso Corporation that ERISA did not
require the employer to provide notification of wearaway periods so long as employees were
informed and forewarned of plan changes. (Converting Defined Benefit Plans to Cash Balance
Plans)
27. In 2011, 41% employees participated in defined contribution plans. (Trends in Retirement
Plan Coverage and Costs)
28. The average benefit test is a method for determining participation requirements. (Qualified
Plans)
29. Top-heavy provisions ensure minimum benefits for key employees. (Qualified Plans)
30. Employers can take tax deductions on qualified plans. (Introduction)
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46. Using the ratio percentage test for tax benefit qualification, what does the percentage of
nonhighly compensated employees to highly compensated employees in the plan have to
be? (Qualified Plans)
47. In 2012, the IRC set the maximum annual benefits of defined benefits plans at what
amount? (Defined Benefit Plans)
48. Which one of these is not a defined contribution plan? (Types of Defined Contribution
Plans)
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57. Briefly discuss the origins and trends in retirement plans in the US. (Defining Retirement
Plans)