FIN 310 Chapter 15

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?

40

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.

E) Job loss

A(n) ________ retirement plan is one in which the company will contribute shares of company stock into the employeeʹs account in place of a cash contribution. The employee does well if the company stock appreciates in value, but can suffer dramatically if the stock depreciates in value.

ESOP

Brian works for Walmart. Walmart contributes company stock into his retirement account instead of cash. This is called a(n)

ESOP.

Which of the following benefits is not provided by Social Security?

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?

It will decline to 2 workers for every 1 retiree.

Social Security is a system where current workersʹ pay taxes that are used to pay current retireesʹ benefits. How is Social Security funded?

Payroll taxes on employers up to a salary cap

Why have employers switched to defined-contribution plans instead of defined-benefits plans for most companies?

They remove the financial risk for future pension costs away from the company and pass it on to the employee.

Why have many companies switched from traditional defined-benefits plans to cash-balance plans?

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

If you have a defined-benefit retirement plan through your place of employment, you are considered a(n) ________; and as such, there is an income limit after which your IRA contributions are no longer tax deductible.

active participant

any 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.

cash balance plan

With a ________, you, and usually your employer, pay funds into your retirement plan.

contributory retirement plan

A(n) ________ is a pension plan in which you and your employer or your employer alone contribute funds directly to a retirement account set aside specifically for you.

defined-benefit plan

A(n) ________ is a pension plan in which you and your employer or your employer alone contribute funds directly to a retirement account set aside specifically for you.

defined-contribution 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)

funded pension plan.

Burt Reynolds has changed jobs. His last retirement planʹs contributions depended on how well the company performed and he shared in the earnings. His present employer allows him ownership in the firm, although this is the riskiest plan. Burtʹs former plan was a(n) ________ and his current plan is a(n) ________.

it-sharing plan; ESOP

A ________ is defined by the fact that your employer provides all the funds for the retirement plan, without any contribution from you.

noncontributory retirement plan

Defined-benefit pension plans are generally ________ and they lack ________.

noncontributory; portability

Tran is employed at a company that annually contributes anywhere from 2% up to 12% of his salary into his retirement plan, depending on how good the companyʹs financials were that year. This type of contribution plan is a(n) ________ plan.

profit-sharing

You are participating in a pension plan where the companyʹs contributions vary from year to year, depending on the firmʹs performance. This is an example of a(n)

profit-sharing plan.

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)

unfunded pension plan.

The difference between a Money Purchase Plan and a Profit Sharing plan is that

with the Money Purchase Plan the contributions are required regardless of how the firm performs.