15.1

Your company pays retirement benefits to current retirees out of current earnings, on a pay-as-you-go basis. This is an example of a(n) A) unfunded pension plan. C) cash balance plan. B) funded pension plan. D) none of the above.

A) unfunded pension plan.

Many older companies have changed from a defined-benefit plan to a(n) ________, which is a retirement plan where workers are credited with a percentage of their pay each year, plus a predetermined rate of interest. A) funded pension plan B) cash balance plan C) unfunded pension plan D) percentage plus inflation plan E) none of the above

B) cash balance plan

When an employer makes pension fund contributions directly to a trustee who holds and invests those funds, the plan is said to be a(n) A) defined-contribution plan. B) funded pension plan. C) unfunded pension plan. D) cash balance plan. E) none of the above.

B) funded pension plan.

A ________ is defined by the fact that your employer provides all the funds for the retirement plan, without any contribution from you. A) defined-benefit plan B) noncontributory retirement plan C) contributory retirement plan D) portable E) none of the above

B) noncontributory retirement plan

Which of the following benefits is not provided by Social Security? A) Death B) Disability C) Education D) Health E) Retirement

C) Education

The system of Social Security is based on young working people paying taxes to support older retired people. The dependency ratio is the number of workers to retirees. Forty years ago it was 16 workers for every one retiree. What will happen to this ratio by the year 2048? A) It will reverse so that there will be more retirees than workers. B) It will increase, because there will be more young workers than retirees. C) It will decline to 2 workers for every 1 retiree. D) Nothing, since the ratio of young people to old people does not change.

C) It will decline to 2 workers for every 1 retiree.

Why have many companies switched from traditional defined-benefits plans to cash-balance plans? A) They want to shower their employees with money B) Regulatory reform made it necessary. C) They save money with them as a result of reduced future benefits for older workers. D) All of the above are correct. E) Only B and C are correct.

C) They save money with them as a result of reduced future benefits for older workers.

With a ________, you, and usually your employer, pay funds into your retirement plan. A) deducted-benefit plan C) contributory retirement plan B) noncontributory retirement plan D) none of the above

C) contributory retirement plan

Frank is considering a new job. However he is concerned about his pension fund. He knows that ________ which is the requirement that he must work for his firm for a specified period of time prior to gaining ownership of the retirement contributions made by his employer has to be met first. A) tenuring B) certifying C) vesting D) validating E) none of the above

C) vesting

To be eligible for Social Security benefits, you receive one credit for every $1,200 in wages that you earn, up to 4 credits per year. How many total credits do you need to qualify for benefits? A) 4 B) 20 C) 30 D) 40

D) 40

Which of the following is a problem associated with many defined-benefits programs? A) Lack of portability B) Failure to adjust for inflation once payments begin C) Many are unfunded. D) All of the above E) A and C only

D) All of the above

How is the size of a personʹs Social Security retirement benefits determined? A) It depends on the number of credits earned in a personʹs lifetime. B) It depends on the average level of earning over a personʹs lifetime. C) It depends on the number of years a person has paid Social Security taxes. D) All of the above are correct. E) Only B and C are correct.

D) All of the above are correct.

Defined-benefit pension plans are generally ________ and they lack ________. A) contributory; divesting B) noncontributory; divesting C) contributory; portability D) noncontributory; portability E) vested; portability

D) noncontributory; portability

If your pension fund contained a provision that allowed employees who were leaving the company to retain and transfer any pension benefits earned to another pension plan, it would be said to have A) transference. B) releasability. C) transportance. D) portability. E) none of the above.

D) portability.

Which of the following statements is true regarding Social Security retirement benefits? A) It attempts to replace 42% of your average earnings. B) Not all occupations are covered. C) Some peopleʹs benefits may be taxed. D) You may retire beginning at age 62 with reduced benefits. E) All of the above

E) All of the above

Social Security is a mandatory insurance program that provides a base level of protection for all of the following occurrences except one. Choose that one. A) Death B) Disability C) Health problems D) Retirement E) Job loss

E) Job loss

Social Security is a system where current workersʹ pay taxes that are used to pay current retireesʹ benefits. How is Social Security funded? A) Income taxes by all Americans B) Payroll taxes on employees up to a salary cap C) Payroll taxes on employers up to a salary cap D) All of the above are correct. E) Only B and C are correct.

E) Only B and C are correct