Chapter 13 Retirement Savings and Deferred Compensation

| November 9, 2018

32.

Which of the
following statements is true regarding employer-provided qualified retirement
plans?

A.

May
discriminate against rank and file employees.

B.

Deductible
contributions are generally phased-out based on AGI.

C.

Executives
are generally ineligible to participate in these plans.

D.

They are
generally referred to as defined benefit plans or defined contribution
plans.

33.

Which of the
following describes a defined benefit plan?

A.

Provides
fixed income to the plan participants based on a formula

B.

Distribution
amounts determined by employee and employer contributions

C.

Allows
executives to defer income for a period of years

D.

Retirement
account set up by an individual

34.

Which of the
following statements regarding defined benefit plans is false?

A.

The
benefits are based on a fixed formula

B.

The vesting
period can be based on a graded or cliff schedule

C.

Employees
bear the investment risks of the plan

D.

Employers
are generally required to make annual contributions to meet expected future
liabilities

35.

Which of the
following statements regarding vesting in a defined benefit plan is
correct?

A.

Under a
cliff vesting schedule, a portion of an employee’s benefits vest each year.

B.

Under a
graded vesting schedule, an employee’s entire benefit vests all at the same
time.

C.

When an
employee’s benefits vest, she is entitled to participate in the employer’s
defined benefit plan.

D.

When an
employee’s benefits vest, she is legally entitled to receive the vested
benefits.

36.

Dean has
earned $70,000 annually for the past five years working as an architect for
MWC Inc. Under MWC’s defined benefit plan (which uses a 7-year graded vesting
schedule) employees earn a benefit equal to 3.5% of the average of their
three highest annual salaries for every full year of service with MWC. Dean
has worked for five full years for MWC and his vesting percentage is 60%.
What is Dean’s vested benefit (or annual retirement benefit he has earned so
far)?

A.

$12,250

B.

$42,000

C.

$7,350

D.

$0

37.

Dean has
earned $70,000 annually for the past 4½ years working as an architect for
MWC. Under MWC’s defined benefit plan (which uses a 5-year cliff vesting
schedule) employees earn a benefit equal to 3.5% of the average of their
three highest annual salaries for every full year of service with MWC. What
is Dean’s vested benefit (or annual benefit he has earned so far)?

A.

$12,250

B.

$42,000

C.

$7,350

D.

$0

38.

Which of the
following best describes distributions from a defined benefit plan?

A.

Distributions
from defined benefit plans are fully taxable as ordinary income.

B.

Distributions
from defined benefit plans are partially taxable as ordinary income and
partially nontaxable as a return of capital.

C.

Distributions
from defined benefit plans are fully taxable as capital gains.

D.

Distributions
from defined benefit plans are partially taxable as capital gains and
partially nontaxable as a return of capital.

39.

Which of the
following is a true statement regarding saving for retirement?

A.

In a given
year, a taxpayer may participate in either an employer-sponsored defined
benefit plan or defined contribution plan but not both.

B.

In a given
year, a taxpayer who receives salary as an employee and also receives
self-employment income may participate in an employer-sponsored defined
contribution plan or may contribute to a self-employed retirement account
but not both.

C.

In a given
year, a taxpayer may contribute to an IRA (either traditional or Roth) or
contribute to a self-employment retirement account but not both.

D.

None of
these is a true statement

40.

Which of the
following describes a defined contribution plan?

A.

Provides
guaranteed income on retirement to plan participants.

B.

Employers
and employees generally may contribute to the plan.

C.

Generally
set up to defer income for executives and highly compensated employees but
not other employees.

D.

Retirement
account set up to provide an individual a fixed amount of income on
retirement.

41.

Which of the
following statements regarding defined contribution plans is false?

A.

Employers
bear investment risk relating to the plan.

B.

Employees
immediately vest in their contributions to the plan.

C.

Employers
typically match employee contributions to the plan to some extent.

D.

An
employer’s vesting schedule is used for employers’ contributions in
determining the amount of the plan benefits the employee is entitled to
receive on retirement.

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