CHAPTER 15
1. All but which one of the following are major reasons for an employee to defer income?
(a) save for the future
(b) permit savings to accumulate interest tax free
(c) currently low tax rates
(d) inability to forecast what the future may hold
2. Which section of the Internal Revenue Code defines rights and opportunities for long-term
compensation programs?
(a) 125
(b) 401
(c) 520
(d) 717
3. Which one of the following is not part of a long-term incentive plan according to Peter Chingos?
(a) gainsharing plans
(b) qualified deferred
(c) capital accumulation
(d) other deferred and supplemental arrangements
4. Which one of the following is least likely to appear in an employee’s long-term compensation
plan?
(a) Social Security
(b) retirement plan
(c) Keogh Plan
(d) 401(k) plan
5. Under the Employee Retirement Income Security Act, employees may not be excluded from
pension plans on the basis of age, if they are at least
(a) 18
(b) 21
(c) 25
(d) 45
6. Who finances the majority of pension plans existing in industry today?
(a) unions
(b) employees
(c) employers
(d) federal government
7. Pension plans are offered to employees to affect their
(a) past lifestyles
(b) current lifestyles
(c) current job security
(d) future lifestyles
8.
The primary reason for integrating pension plans with Social Security is to
(a) reduce company cost
(b) capitalize on government deductions
(c) eliminate pension benefits for lower-paid employees
(d) provide reasonable retirement benefits to employees at all income levels
9 Integrating primary Social Security payments with the corporate pension plan will
normally provide the least benefits to employees in which job?
(a) president
(b) engineer
(c) middle manager
(d) janitor
10 ___________ refers to earned pension rights that are not forfeitable for any reason
(a) Vesting
(b) Severance pay
(c) Retirement earnings
(d) Deferred profit sharing
11 Payments to a defined contribution plan will be limited to ______ of the benefits in a
defined benefits plan when the limits to a defined benefit plan reach $120,000.
(a) 1/4
(b) 1/3
(c) 1/2
(d) 2/3
12 Which one of the following is not a benefit to the employer when offering an ESOP?
(a) maintains a stable work force
(b) owner can sell stock to a friend
(c) results in a dilution of value of the stock
(d) ESOT can borrow money under favorable conditions
13 Which one of the following groups of employees is most likely to receive a pension that equals or
at times exceeds their annual salary?
(a) top-level operating managers
(b) administrators
(c) executives
(d) professionals
14. Which of the following compensation areas is most affected by changes in IRS regulations?
(a) minimum wages
(b) union contracts
(c) executive compensation
(d) professional employee compensation
15. Which one of the following statements is not true regarding Supplementary Executive Retirement
Plans (SERPs)?
(a) plans seldom make any contractual requirements on recipient
(b) plans are unfunded
(c) frequently funds are made available through employer’s own insurance policies
(d) employer retains control of plan assets
16. Which one of the following statements does not describe a defined benefits plan?
(a) funded by a specified payment to the account of each participant
(b) includes a formula that defines the benefit an employee is to receive
(c) annual contribution by employer made on an actuarial basis
(d) employees can be required to contribute to the plan
17. A defined contribution plan has all but which one of the following features?
(a) employer contributions can be a flat dollar amount
(b) employer contribution can be based on some special formula
(c) provides a definitely determinable payment over a prescribed schedule
(d) top limit to the contribution is $30,000
18. Which one of the following statements is not true regarding a defined contribution plan?
(a) most pension plans are defined contribution plans
(b) crucial to a defined contribution plan are investment and management skills
(c) employers assume the investment risk
(d) most plans have less than 100 participants
19. An employee can contribute up to ______ percent of his or her salary with total employee and
employer contribution limited to $_____ or 25 percent of salary in a savings or thrift plan.
(a) 10%, $25,000
(b) 40%, $7,000
(c) 5%, $25,000
(d) 6%, $30,000
20. A major difference between a savings and thrift plan and a 401(k) plan is
(a) employers can match employee contributions (within a prescribed limit)
(b) a savings and thrift plan is a defined contribution plan
(c) employee contributions (within a limit) are tax deferred
(d) profit sharing can be tied to a 401(k) plan
21. Retirement before age _______ is considered early retirement
(a) 70
(b) 65
(c) 62
(d) 55
22. An ESOP is a
(a) defined contribution plan
(b) nonqualified stock bonus plan
(c) qualified profit-sharing plan
(d) defined benefit plan
23. ESOPs provide all but which one of the following as benefits to an employer?
(a) company can sell its stock and redeem it without reducing the true value of the stock
(b) owner’s equity can be diluted
(c) company can increase its working capital
(d) company can pay off stock-related loans and redeem stock through the use of pretax
dollars
Match the pension plan listed in the right-hand column with the characteristic listed in the left-hand
column that best fits it:
Characteristic Pension Plan
24. Allows no tax deduction for annual contribution (a) SIMPLE
25. TRA 86 restricted use to employers with less than (b) IRA
26 employees
26. Available for individuals who do not participate in (c) SEP
an employer-sponsored retirement plan
27. Designed for employers with no more than 100 (d) Keogh (HR-10) Plan
employers
28. Can take three options, one being a profit-sharing plan (e) Roth IRA
Match the description of a feature in the right-hand column with the appropriate deferred compensation
arrangement listed in the left-hand column:
Deferred Compensation Arrangement Feature
29. Social Security (a) Involves a payment of a specified amount
to each participant
30. Defined Benefits Plan (b) Payments are linked to the CPI
31. Defined Contribution Plan (c) Employer contribution is a certain
percentage of employee’s earnings from
time employee enters the program
32. Cash-Balance Plan (d) Involves use of a formula to determine
amount of benefit an employee will
receive
Chapter 15