978-0133427073 Test Bank Chapter 21 Part 2

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39) Which of the following statements regarding the funding of Social Security is false?

A) In 2010, workers contributed 6.2% of their wages up to a maximum of $106,800.

B) Employers contribute an amount equal to the workers’ contributions.

C) Interest, dividend, rent, and royalty income are also taxed to provide supplemental funds for

Social Security.

D) Contributions exceeding the amounts paid to current Social Security recipients are invested in

Treasury bonds to build up a Social Security trust fund.

40) Which of the following is not a proposal for insuring that sufficient funds will be available to

provide Social Security benefits to future retirees?

A) Raise the maximum income cap on which workers and employers are taxed.

B) Provide more generous annual cost of living increases.

C) Raise the minimum age for receiving benefits.

D) Reduce the amount of future benefits.

41) Which proposal for insuring that sufficient funds will be available to provide Social Security

benefits to future retirees does the AARP find least objectionable?

A) Raise the maximum income cap on which workers and employers are taxed.

B) Provide more generous annual cost of living increases.

C) Privatize Social Security.

D) Lower immigration restrictions to increase the number of workers paying into the Social

Security system.

42) Privatization of Social Security

A) would transform the program from an unfunded pay-as-you-go system to a fully funded

pension plan.

B) would mean that workers’ current contributions to Social Security would no longer be

available to pay benefits to current retirees.

C) receives less public support when the stock market declines.

D) all of the above

E) none of the above

43) Fraudulent practices and other abuses of private pension funds led Congress to enact the

________.

A) Federal Deposit Insurance Corporation Act

B) Employee Retirement Income Security Act

C) Federal Reserve Act

D) Social Security Act

44) Keogh plans and IRAs are

A) individual pension plans.

B) government pension plans.

C) corporate pension plans.

D) public pension plans.

45) Private pension plan assets are invested mainly in ________.

A) government securities

B) corporate bonds

C) stock

D) certificates of deposit

46) Which of the following pensions does not promise employees a specific retirement benefit?

A) Defined-benefit plan

B) Defined-contribution plan

C) Overfunded plan

D) Underfunded plan

47) All insurance is subject to several basic principles, including all of the following except that

A) the insured must provide full and accurate information to the insurance company.

B) the insured is to profit as a result of insurance coverage.

C) the loss must be quantifiable.

D) there must be a relationship between the insured and the beneficiary.

48) A basic product of life insurance companies is ________.

A) disability insurance

B) annuities

C) health insurance

D) all of the above

49) ________ is an insurance product that will help if you live longer than you expect. For an

initial fixed sum or stream of payments, the insurance company agrees to pay you a fixed amount

for as long as you live.

A) Life insurance proper

B) Disability insurance

C) An annuity

D) Health insurance

50) The broad categories of life insurance products including which of the following?

A) Term

B) Whole life

C) Universal life

D) All of the above

51) Which life insurance policy usually requires the insured to pay a level premium for the

duration of the policy, and the overpayment accumulates as a cash value that can be borrowed by

the insured at reasonable rates?

A) Whole life

B) Term

C) Universal life

D) None of the above

52) What insurance protects against liability for harm the insured may cause to others as a result

of product failure or accidents?

A) Property insurance

B) Health insurance

C) Life insurance

D) Casualty insurance

53) A credit default swap, or CDS, is essentially

A) insurance against default on a financial instrument.

B) a method for swapping credit agreements between banks.

C) a method for companies in default to swap credit ratings.

D) insurance against the default of a party in a swap agreement.

54) During the global financial crisis, state and local governments now found their interest costs

rising. Which of the following were causes of this?

A) Lower tax revenues because of the weaker economy

B) Weaker value of monoline insurance guarantees on their debt

C) Both A and B

D) None of the above

55) Between 1995 and 2009, the amount of credit default swaps (CDSs) exploded, along with the

marketing of securitized mortgages. By their peak in 2008, there were about ________ of CDSs

outstanding.

A) $62 million

B) $62 billion

C) $6.2 trillion

D) $62 trillion

56) Which of the following is not what can we expect in the future regarding pension funds?

A) Pension funds will help create more stable financial markets.

B) Pension funds will continue their growth and popularity.

C) Pension fund variety will continue to expand.

D) Pension funds will gain increased control over corporations as they invest in the equity of

these companies.

1) Adverse selection occurs when those most likely to get insurance payoffs are the ones who

want to purchase the insurance the most.

2) The fact that insurance companies charge young males higher automobile insurance premiums

than young females is an example of coinsurance.

3) When a life-long chain smoker attempts to purchase a life insurance policy, the insurance

company faces the problem of adverse selection.

4) The higher the insurance coverage, the more the policyholder can gain from risky activities

that make an insurance payoff less likely.

5) Vesting refers to the length of time that a person must be enrolled in a pension plan before

being entitled to receive benefits.

6) A defined-contribution plan promises employees a specific amount of retirement income.

7) The Pension Benefit Guarantee Corporation performs a role similar to that of the Office of

Thrift Supervision.

8) Social Security is a “pay-as-you-go” system.

9) The Social Security system is an example of a pension plan that is fully funded.

10) Demographic trends and changes in retirement patterns suggest that Social Security funding

problems will ease over the next few decades.

11) A whole life insurance policy pays a death benefit if the policyholder dies.

12) Most private pension plans are insured by the Penny Benny, which pays benefits when a

plan’s sponsor goes bankrupt.

13) Property and casualty insurance protects against losses from fire, theft, storm, explosion, and

even neglect.

14) Health maintenance organizations (HMOs) shift the risk from the provider to the insurance

company.

15) Casualty insurance can be provided in either named–peril policies or open-peril policies.

16) A monoline insurance company is an insurance company which specialize in credit insurance

alone.

1) Who has the strongest incentive to monitor the performance of individual pension plans such

as Keoghs and IRAs? Explain.

Topic: Chapter 21.7 Regulation of Pensions Plans