1 - Private Retirement Plan and Social Security Development Flashcards

1
Q

Important

Why have private retirement plans grown so rapidly in the last four decades?

  1. increased _______
  2. _____ considerations
  3. _____ stabilization programs
  4. Pressures from _____
  5. The necessity of business firms to offer employer ______
  6. The desire of employers to reward employees for ______
  7. efficiency of the _____ savings approach
  8. The ______ efforts of funding agencies
A
  1. productivity
  2. Tax
  3. Wage
  4. unions
  5. retirement plans
  6. long periods of service
  7. formal group
  8. sales
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2
Q

is the assumption that the financial needs of an individual decrease after retirement valid?

A

Somewhat, but the assumption is overstated

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3
Q

The following are among key changes that EGTRRA of 2001 made to retirement plans: (7)

  • Increased contribution, benefit and deduction _____
  • Provided _____ for the start-up of retirement plans
  • Provided tax credits to _________ employees making contributions to retirement plans
  • Created greater _____ among corporate, nonprofit and governmental plans
  • Created greater _______ permitted for participants 50 and over
  • created the “__________ program”
  • greater _______
A
  • limits
  • business credits
  • lower and middle-income
  • parity
  • contribution limits
  • qualified Roth contribution
  • portability
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4
Q

The employer has several courses of action if an employee can no longer meet the requirements of the job. (4)

A
  1. terminate the employee
  2. retain in his or her current position
  3. retain and transfer the worker to a less demanding job
  4. establish a formal retirement plan to provide less productive employees with an acceptable alternative to continued employment
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5
Q

The __________ of 1982

  • reduced the _____ of retirement plan benefits and contributions;
  • brought about parity between corporate plans and plans for ______;
  • introduced special restrictions on plans that are considered ______ that is, plans that appear to be heavily weighted toward key employees;
  • and provided for federal income tax withholding on ____ and ____ payments.
A
  • tax equity and Fiscal responsibility Act (TEFRA)
  • maximum limits
  • self-employed persons
  • “top-heavy,”
  • retirement and annuity
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6
Q

social security benefits are automatically adjusted each year for changes in _______, which maintains the real purchasing power of monthly benefits during periods of inflation.

A

the cost of living

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7
Q

can result in a reduction or loss of monthly benefits for workers who have not attained the full retirement age and have earning income above certain annual limits.

A

The Social Security program earnings test

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8
Q

_______ represented the most pervasive changes to retirement plans since the passage of ERISA.

  • It imposed new _____ tests and accelerated vesting requirements for qualified plans
  • changed the rules under which qualified plans could be integrated with Social Security
  • lowered limits for retirement benefits that begin before the age of ___
  • changed the timing and taxation of plan _______
  • terminated _______ for many qualified plan participants.
A
  • The Tax Reform Act of 1986 (TRA ‘86)
  • coverage
  • 65
  • distributions
  • IRA deductions
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9
Q

the most important social insurance program in the united states is the Old-Age, Survivors, and Disability Insurance program, commonly known as ______

A

social security

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10
Q

the growth of early retirement plans might best be categorized by a single concept ________

The establishment of plans was viewed as a management prerogative, and the primary motivation for the creation of plans was the economic benefit, direct or indirect, that accrued to the _______.

A
  • business expediency.
  • employer
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11
Q

The principal tax advantages possessed by qualified retirement plans are: (5)

(important card)

A
  1. Employer contributions can be deducted as a business expense.
  2. Investment income is tax-deferred.
  3. no employee income tax on employer contributions made on the employee’s behalf.
  4. employee may be in a lower income tax bracket when distributions are received.
  5. distributions from retirement plans may be taxed on a favorable basis.
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12
Q

Some of the distinguishable characteristics of social insurance programs are: (5)

  1. they are _______.
  2. generally designed to provide only a ____ of income
  3. pay benefits based largely on ______ rather than on individual equity.
  4. Their benefits are loosely related to the worker’s ______
  5. It is unnecessary for the programs to be ______ and they are designed to be financially self-supporting.
A
  • compulsory
  • floor
  • social adequacy
  • earnings
  • fully funded
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13
Q

What are the forces at work that have restricted the growth of savings in this country? (3)

A
  • Mass media
  • constantly increasing standard of living Spending now vs saving
  • High Federal taxes
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14
Q

A National Labor Relations Board (NLRB) ruling in 1948 that employers had a legal obligation to bargain over the terms of retirement plans facilitated labor’s drive for ___________

A

retirement benefits.

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15
Q

IMPORTANT

  • Opponents of the deferred wage concept argue that some employers that pay the prevailing cash wage rate for the particular industry also provide a _______.
  • Second, the deferred wage concept ignores the possible argument that the employer willingly accepts _____ to provide a retirement plan for employees.
  • Third, it is sometimes argued that if retirement benefits are a form of wage, then ______ should be entitled to the part of the retirement benefit that has been earned to the date of termination.
A
  • retirement benefit
  • a lower profit margin
  • terminated employees
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16
Q

Among the groups covered under the Social Security program are (3):

A
  • private-sector employees
  • Federal civilian employees hired after 1983 are covered on a compulsory basis
  • State and local government employees can be covered by a voluntary agreement between the state and local government
17
Q

What are some of the provisions of the Pension Protection Act of 2006 related to defined contribution plans? (4)

(important)

A
  1. incentives to automatically enroll employees
  2. faster vesting schedules
  3. Allowed financial service providers to give personal investment advice to 401(k) participants and individual retirement account participants
  4. diversification requirements
18
Q

describe the merits of private retirement plans as a supplement to social security benefits and individual savings programs. (3)

A
  • lowest cost method of providing economic security for the aged
  • increase consumption levels among the aged, which helps to maintain a high level of economic activity.
  • represent a type of forced savings.
19
Q

Reasons for the withdrawal of the aged from the labor force: (4)

A
  • older workers want to retire and do so voluntarily.
  • physically unable to perform work duties as efficiently as they could at younger ages.
  • Industrial and technological advances operate to the disadvantage of older persons.
  • Old-Age, Survivors, Disability, and Health Insurance (OASDHI) program and private retirement plans have tended to institutionalize age 65 as the “normal retirement age.”
20
Q

Reasons for adopting social insurance programs include: (3)

  • to solve _________
  • certain risks are difficult to _____
  • ______ to the population.
A
  • complex social problems
  • insure privately
  • economic security
21
Q

The basic economic problems facing the aged include the following (4):

  • desire of aged individuals to maintain their _________ in their retirement years
  • declining _______ available to the aged
  • low _______ of the aged
  • improvement in ________ experienced during the 20th century.
A
  • preretirement standard of living
  • employment opportunities
  • individual savings
  • longevity
22
Q

How did wage stabilization during World War II affect private retirement benefits?

A

It helped the establishment of employee benefit programs including retirement

23
Q

The “three-legged stool” was a retirement terminology from the past that many financial planners used to describe the three most common sources of retirement income for a retiree during retireme:

A
  1. Social Security
  2. employee pensions
  3. personal savings.
24
Q

The relatively low individual savings of the aged is due from (4)

A
  • higher income taxes
  • increased consumption patterns
  • inflation pressures in the recent past
  • other factors
25
Q

the homeowner receives a lifetime monthly income in exchange for the title to the home at the homeowner’s death. The equity in the home and life expectancy of the homeowner will determine the amount of the monthly payment.

A

a reverse annuity,

26
Q

the analogy between humans and machines is inherently unsound. A machine is an asset owned by the employer, and depreciation is merely an accounting technique for allocating the equipment costs to various accounting periods. Employees, on the other hand, are free agents and sell their services to employers for a specified wage rate.

A

human depreciation concept

27
Q

(3) major effects of the employee retirement income security Act of 1974 (ERISA) on the design process for private retirement plans:

(important)

A
  • affected virtually all aspects of corporate and self-employed retirement plans from a legal, tax, investment and actuarial viewpoint
  • established new reporting, disclosure and fiduciary requirements as well as a program of plan termination insurance.
  • establishment of the (IRA) concept
28
Q

Social Security retirement benefits are an important source of income to most retired U.S. workers. Without these benefits, poverty and economic insecurity among the aged would be substantially increased. To qualify for full retirement benefits, the worker must meet a specified ________.

Actuarially reduced benefits are available as early as the age of ___.

Monthly retirement benefits can be paid to retired workers and also their ________. The monthly retirement benefit is based on the worker’s _______.

A
  • normal retirement age
  • 62
  • eligible dependents
  • “primary insurance amount” (PIA) (which is based on AIME)
29
Q

Social security PIA is based on the workers ___________; a method that updates the worker’s earnings based on increases in the average wage in the national economy.

A

Average Indexed Monthly Earnings” (AIME)