1. Alfred has worked for CJD, a large manufacturer, for the last 20 years and is a participant in CJD’s defined benefit plan. Alfred is concerned over the company’s financial difficulties and is worried that management at CJD might modify his future benefits and cause his expected benefits at retirement to be reduced. Which of the following laws is designed to prevent that from occurring?
a. Coverage
b. Non-discrimination
c. Anti-cutback
d. There are no laws that prevent an employer from modifying future benefits, even in a defined benefit plan.
2. Which of the following is a characteristic of pension plans that does not apply to profit sharing plans?
a. Separate accounts.
b. In-service withdrawals for select employees, plan permitting.
c. Limited investment in life insurance.
d. Mandatory funding.
3. Which of the following is the most common defined benefit plan funding formula for large companies?
a. Flat amount formula.
b. Flat percentage formula.
c. Unit credit formula.
d. Excludable amount formula.
4. Defined benefits plans and cash balance plans are both pension plans. However, they are significantly different plans. Which of the following statements is true?
a. A cash balance pension plan benefits younger and older employees equally.
b. Both plans have hypothetical accounts for each plan participant.
c. Both plan use the same vesting schedules whether the plan is top heavy or not.
d. Both plans can provide for lump-sum benefits upon termination and/or full retirement age.
5. Jacob is a participant in JJ’s defined benefit plan. Jacob is 37 years old and earns $160,000. He has 4 years of service for purposes of the plan and has worked at the firm for 5 years. The plan provides a benefit of 1.5% for each year of participation. The plan has the least generous vesting schedule possible. Almost 70 percent of the accrued benefits are attributable to the fifteen equal owners, who have all been working at the company for decades. If Jacob were to leave today, what percent of his salary (as defined by the plan) could he expect to receive at normal retirement?
a. 3.6%.
b. 4.8%.
c. 6.0%.
d. 6.4%.
6. Parker is a highly skilled sales person at Byberry, which is a 30-year-old company that has grown significantly in terms of revenue and product offerings. It sponsors a pension plan that provides a benefit of 2% times the years of participation times the average of the final three years of salary. Parker has worked for Byberry for the last 30 years and earned $200,000 two years ago, $150,000 last year, and $250,000 this year. If he is retiring this year, how much should he expect to receive as a pension benefit?
a. $200,000.
b. $185,000.
c. $160,000.
d. $120,000.
7. Drake has worked for GT for the last 20 years and been a participant in its defined benefit plan. In the last ten years, his salary has increased significantly. Over the last ten years, his compensation was $300,000, $145,000, $200,000, $400,000, $225,000, $240,000, $233,000, $210,000, $150,000, and $290,000, respectively. In 2017, what is the most that he could receive as a pension payment?
a. $330,000.
b. $288,333.
c. $270,000.
d. $215,000.
8. jake has worked for GT for the last 20 years and been a participant in its defined benefit plan. In the last ten years, his salary has increased significantly. Over the last ten years, his compensation was $290,000, $100,000, $120,000, $100,000, $240,000, $200,000, $160,000, $180,000, $150,000, and $210,000. In 2017, what is the most that he could receive as a pension payment?
a. $200,000.
b. $215,000.
c. $246,667.
d. $270,000
9. Which of the following plans needs an actuary on an ongoing basis?
a. Tandem plan.
b. Cash balance plan.
c. 412(e) plan.
d. Target benefit plan.