Module 2 Defined Benefit and Other Pension Plans

Question 1

All of the following statements regarding cash balance pension plans are correct except

A)
a cash balance pension plan is a type of defined benefit pension plan.
B)
the employer bears the risk of poor investment performance.
C)
limited plan benefits are guaranteed by the Pension Benefit Guaranty Corporation (PBGC).
D)
cash balance pension plans are most appropriate for small companies with older employees.

Answer 1

d
A cash balance pension plan is a type of defined benefit plan where limited benefits are guaranteed by the PBGC. The employer bears the risk of poor investment performance. The plan is most appropriate for companies with a relatively large and relatively young workforce.

LO 2.2.1

Question 2

Baxter and Smith is a law firm with a defined benefit pension plan. When would the plan be required to be covered by the Pension Benefit Guaranty Corporation (PBGC)?

A)
If the firm employs 26 or more employees
B)
If the firm employs 25 or fewer employees
C)
If the firm employs 10 or more employees
D)
A professional service employer is not required to be covered by PBGC

Answer 2

a

specifically MORE THAN 25

Defined benefit plans maintained by certain professional service employers with 26 or more employees must be covered by the PBGC.

LO 2.1.1

Question 3

Which of the following statements is CORRECT in describing an accrued benefit?

A)
The benefit that each employee receives when they leave the company
B)
The dollar amount distributed to the employee at termination of employment
C)
The dollar amount set aside in the defined benefit plan for the employee
D)
The total benefit the participant has earned to date (amount is usually determined by multiplying the result of the participant’s years of service divided by the total potential years of service times the benefit formula in a flat percentage benefit plan)

Answer 3

d

An accrued benefit is usually determined by multiplying the result of the participant’s years of service divided by the total potential years of service, times the benefit formula. The dollar amount to be distributed on termination is the “present value of the vested accrued benefit times the assumed annuity factor.”

LO 2.1.2

Question 4

Which of the following statements regarding money purchase pension plans is CORRECT?

A)
Annual employer funding is optional.
B)
The plan requires actuarial services.
C)
They allow a maximum of 25% of employer stock.
D)
These plans typically favor younger employees.

Answer 4

d

Money purchase plans favor younger employees. Money purchase pension plans have known funding costs, mandatory annual contributions, and limit the amount of company stock to a maximum of 10%.

LO 2.3.1

Question 5

Which of the following is a retirement plan that is expensive to administer, the employer assumes the investment risk, favors older plan participants, and does NOT permit elective deferrals?

A)
Money purchase pension plan
B)
Traditional defined benefit pension plan
C)
Traditional profit-sharing plan
D)
Target benefit pension plan

Answer 5

B

Employer assumes risk: defined benefit plan. The employer is promising to get the employee a set amount of benefit. If they don’t, it comes from employer’s pocket.
Favors older plan participants: just remember Money Purchase plans favor younger employees.
Permit elective deferrals? IDK either dude.

The question is describing a traditional defined benefit plan.

LO 2.1.1

Question 6

A cash balance pension plan is

A)
a money purchase pension plan.
B)
a profit-sharing plan.
C)
an employee stock bonus plan.
D)
a defined benefit pension plan.

Answer 6

d

Cash balance = defined benefit. They are promising a CASH BALANCE at some point I think.

A cash balance pension plan is a defined benefit pension plan. In a cash balance pension plan, the employer makes specific contributions that grow at a guaranteed return, thus providing a guaranteed retirement benefit.

LO 2.2.1

Question 7

Which of the following factors affect a target benefit plan participant’s retirement benefits?

The actuarial assumptions used to determine the contribution to the plan
The participant’s compensation for the plan year
The investment performance of the plan’s assets
The age of the plan participant
A)
I and II
B)
II, III, and IV
C)
I, II, III, and IV
D)
I and III

Answer 7

Options I, II, III, and IV are all correct. Actuarial assumptions about longevity and interest rates affect the amount contributed to a participant’s account. A participant’s compensation directly affects the size of her plan benefit. The value of a participant’s target benefit account balance (i.e., a separate account) depends, in part, on the investment performance (gains and losses) of the plan’s assets. Target benefit plans favor older employees who are closer to retirement.

LO 2.3.2

Question 8

Which of the following statements is CORRECT in describing a defined benefit plan that provides benefits under a unit benefit formula?

A)
Retirement benefits are generally higher than the benefits provided under a flat benefit formula.
B)
The benefit is generally expressed as a flat amount or a flat percentage of compensation.
C)
The plan is generally not favorable for a participant with many years of service.
D)
The benefit is generally expressed as a percentage of compensation per year of service.

Answer 8

d

The unit benefit formula defines the benefit as a percentage of compensation for each year of service or participation.

LO 2.1.2

Question 9

Which of these statements regarding target benefit pension plans are CORRECT?

The plans are covered by Pension Benefit Guaranty Corporation (PBGC) insurance.
Older participants who are new to the employer are favored in a target benefit pension plan.
Each employee has an individual account.
Minimum funding standards apply.
A)
II, III, and IV
B)
II and IV
C)
I, II, III, and IV
D)
I and III

Answer 9

Statements II, III, and IV are correct. Target benefit pension plans are a type of defined contribution plans and are not covered by PBGC insurance. Each plan participant has an individual account. Because target benefit plans are pension plans, minimum funding standards apply. Like defined benefit plans, the plans favor older participants in the sense that a new employee who is older than another employee and has the same compensation as the younger employee will get a larger target benefit contribution than the younger employee. This is true because both workers have the same target benefit, but the younger worker has more time for the balance to grow than an older worker.

LO 2.3.2

Question 10

A fully insured Section 412(e)(3) pension plan is funded exclusively by

A)
blue-chip stocks.
B)
municipal bonds.
C)
Treasury bonds.
D)
cash value life insurance or annuity contracts.

Answer 10

A fully insured 412(e)(3) pension plan is funded exclusively by cash value life insurance or annuity contracts. Using insurance as a funding vehicle ensures the payment of a death benefit to plan beneficiaries.

LO LO 2.2.2

Question 11

Which of the following is true regarding the interest rate credit used in cash balance pension plans?

The interest rate credited to a participant’s hypothetical account is determined upon the establishment of the plan and cannot fluctuate.
If the underlying investments of the plan outperform the interest rate credit guarantee in a given year, the participant will receive a greater credit for that given year.
If the underlying investments of the plan outperform the interest rate credit guarantee in a given year, the employer may reduce plan contributions for that given year.
Because of the hypothetical individual accounts, plan participants may choose among various fixed interest rate investments for their accounts.
A)
IV only
B)
I and III
C)
III only
D)
I, II, and IV

Answer 11

Only Statement III is correct. Statement I is incorrect because the interest rate credit may be linked to a market rate, such as a Treasury security; the rate credited may fluctuate in a given year, but will never be less than the stated formula. Statement II is incorrect because the employee does not receive additional interest credit if the underlying assets outperform the guaranteed credit. This also makes it possible for the employer to reduce plan contributions in years in which the underlying assets outperform the guaranteed interest credit. The employer bears the investment risk in a cash balance pension plan; participants do not select their own investments.

LO 2.2.1

Question 12

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

A separate account must be maintained for each plan participant.
The maximum benefit permitted by law may be reduced proportionately for each year of participation less than 10.
The services of an actuary are needed to demonstrate that the minimum funding standards are satisfied.
A definitely determinable retirement benefit must be provided regardless of employer profits.
A)
I, II, and IV
B)
II and III
C)
II, III, and IV
D)
I and II

Answer 12

Statements II, III, and IV correctly state the rules concerning the 10-year participation requirement for the maximum benefit, the need for an actuary to demonstrate adequate funding, and the requirement that the plan’s benefit be definite. A pension plan’s benefit cannot be conditional upon the employer’s earning profits. Statement I is incorrect because defined benefit plans do not maintain a separate account for each participant.

LO 2.1.1

Question 13

A target benefit pension plan provides which of these?

Lower contributions for younger employees
Lower contributions for lower-paid employees
Lower contribution levels for older plan participants
Lower contribution levels for higher-paid participants
A)
I, II, III, and IV
B)
I, II, and III
C)
III and IV
D)
I and II

Answer 13

Statements I and II are correct. A target benefit pension plan provides lower contributions for younger, lower-paid employees and higher contribution levels (as a percentage of compensation) for older, higher-paid plan entrants.

LO 2.3.2

Question 14

Which of the following are disadvantages to the participant in cash balance pension plans?

The employer bears the investment risk.
The investment return is guaranteed to the participant.
Retirement benefits may be inadequate for older plan participants.
The participant is not credited with actual returns for years in which the actual return exceeds the guaranteed return.
A)
I, II, and III
B)
I and II
C)
III and IV
D)
I, II, III, and IV

Answer 14

Statements III and IV are correct. Disadvantages to the participant in a cash balance pension plan include the fact that retirement benefits may be inadequate for older plan participants, and the participant is not credited with actual returns when the return exceeds the guarantee.

LO 2.2.1

Question 15

If a defined benefit pension plan has been designed using three- to seven-year graded vesting, which of the following are minimum participation requirements for the plan?

21 years of age or older
25 years of age or older
Has completed 1 year of service
Has completed 2 years of service
A)
I and III
B)
I only
C)
I and IV
D)
II and IV

Answer 15

The minimum participation requirements of any qualified retirement plan are age 21, and completion of one year of service (21-and-1 rule). Statements II and IV are incorrect. This is the normal requirement for plan eligibility. If an employer retirement plan requires two years of service to be eligible for the plan, then 100% immediate vesting is required.

LO 2.1.1

Question 16

Ross, age 75, works for Financial Strategies, Inc. The company has a long-established retirement plan. The plan has never required an actuary or Pension Benefit Guaranty Corporation (PBGC) insurance, but the employer is required to make annual mandatory contributions to each employee’s account. What type of retirement plan was established by Financial Strategies?

A)
Cash balance pension plan
B)
Money purchase pension plan
C)
Target benefit pension plan
D)
Traditional defined benefit pension plan

Answer 16

A money purchase pension plan requires annual mandatory employer contributions to each employee’s account, does not require an actuary, and does not require PBGC insurance.

The other choices are incorrect:

A cash balance pension plan requires an actuary and PBGC insurance.
A target benefit pension plan requires an actuary at inception.
A traditional defined benefit pension plan requires the services of an actuary annually as well as PBGC insurance.
LO 2.3.1

Question 17

Your client has a retirement plan with no PBGC coverage and 30% of covered compensation as a projected retirement benefit. Which of the following type of plans does your client most likely have?

A)
Cash balance pension plan
B)
Traditional defined benefit pension plan
C)
Target benefit pension plan
D)
Money purchase pension plan

Answer 17

This is most likely a target benefit pension plan because of the individual account (DC) and projected (targeted) retirement benefit.

LO 2.3.2

Question 18

Which of these statements regarding fully insured Section 412(e)(3) plans are false?

A fully insured plan is appropriate for an employer who cannot commit to regular premium payments.
This type of plan is required to be certified by an independent enrolled or licensed actuary.
Section 412(e)(3) plans do not have to meet minimum funding standards unless there is an outstanding loan against the insurance policy.
A Section 412(e)(3) plan is a type of defined benefit pension plan.
A)
III and IV
B)
I and II
C)
II and III
D)
I and IV

Answer 18

I II

Statement I is incorrect because these plans require annual funding. Statement II is also incorrect. Section 412(e)(3) plans are not required to be certified by an independent enrolled or licensed actuary; the insurance company is responsible for the soundness of the plan. Statement III is correct. Section 412(e)(3) plans must only meet minimum funding standards if there is a loan outstanding against the insurance policy funding the plan. Statement IV is also correct.

LO 2.2.2

Question 19

Which of the following statements regarding fully insured Section 412(e)(3) plans is FALSE?

A)
This type of plan is not required to be certified by an enrolled or licensed actuary.
B)
Section 412(e)(3) plans must meet minimum funding standards each plan year.
C)
A Section 412(e)(3) plan is a type of defined benefit pension plan.
D)
A fully insured plan is inappropriate for an employer who cannot commit to regular premium payments.

Answer 19

b

Section 412(e)(3) plans must only meet minimum funding standards if there is a loan outstanding against the insurance policy funding the plan.

LO 2.2.2

Question 20

Your client has a retirement plan with separate participant accounts and 40% of salary as a projected retirement benefit. Which of the following type of plans does your client most likely have?

A)
Cash balance pension plan
B)
Target benefit pension plan
C)
Money purchase pension plan
D)
Traditional defined benefit pension plan

Answer 20

This plan is most likely a target benefit pension plan because of the individual account (DC) and projected (targeted) retirement benefit.

LO 2.3.2

Question 21

In a traditional defined benefit pension plan, what is the maximum annual pension benefit allowable under the law during 2023?

A)
The lesser of 100% of the participant’s average compensation in the highest three years of consecutive service with the employer, or $265,000 annually
B)
The greater of 100% of the participant’s average compensation in the five years immediately preceding normal retirement age, or $100,000 annually
C)
The greater of 100% of the participant’s annual compensation, or $66,000 annually
D)
The lesser of 100% of the participant’s annual compensation, or $330,000 annually

Answer 21

a

The maximum annual benefit that may be paid to a participant under a defined benefit plan during 2023 is the lesser of 100% of the participant’s covered compensation averaged over the three highest-earning years of consecutive service with an employer, or $265,000 annually.

LO 2.1.2

Question 22

When is a cash balance pension plan most often used?

A)
When an employer has a simplified plan and wishes to increase complexity and requirements of plan administration
B)
When an employer has an existing defined contribution plan and wishes to benefit primarily younger employee-participants
C)
When a self-employed individual wishes to avoid limitations on plan benefits and contributions that otherwise apply to common law employees
D)
When an employer already has a well-funded traditional defined benefit pension plan and is desirous of cost savings with respect to its sponsored retirement plans

Answer 22

d

A cash balance plan is perceived by employees as having many of the desirable attributes of defined contribution plans, such as by expressing the accrued benefit in terms of hypothetical individual accounts, and yet can be less expense to maintain and administer than a traditional defined benefit pension plan.

LO 2.2.1

Question 23

Which of the following are eligibility requirements that a defined benefit plan must satisfy to qualify for tax-favored status?

The plan must include employees who have attained 21 years of age.
The plan must include employees who have given one year of service to the employer during which they have worked a minimum of 1,000 hours.
If the employer uses the two-year 100% rule, participation requirements may be based on completion of two years of service.
An employee’s service with a predecessor must count toward years of service in a successor’s plan.
A)
I, II, and IV
B)
I, II, and III
C)
I, II, III, and IV
D)
I, III, and IV

Answer 23

All of these requirements must be met if the defined benefit plan is to qualify for tax-favored status.

LO 2.1.1

Question 24

Which of the following statements regarding a cash balance pension plan are CORRECT?

It is a defined benefit pension plan with a guaranteed interest rate credit.
Funds contributed to the plan are typically invested in securities with returns exceeding the return guaranteed to employees.
The employer assumes the risk of investment performance for the employee.
An increase in plan contributions may be necessary because of required PBGC insurance coverage.
A)
II and IV
B)
I and II
C)
I, II, III, and IV
D)
II, III, and IV

Answer 24

All of the statements are correct.

LO 2.2.1

Question 25

Which of the following statements regarding cash balance pension plans is CORRECT?

Cash balance plans are less expensive than traditional defined benefit plans and are implemented by plan sponsors in order to decrease costs.
The cash balance pension plan is not subject to minimum funding requirements.
A)
Both I and II
B)
II only
C)
I only
D)
Neither I nor II

Answer 25

Statement II is incorrect because a cash balance pension plan is subject to minimum funding requirements.

LO 2.2.1

Question 26

Which of the following statements regarding a target benefit pension plan is CORRECT?

It requires actuarial assumptions.
The employee’s final benefit is not guaranteed by the employer.
The maximum annual additions limit is the lesser of 100% of covered compensation or $66,000 (2023).
The maximum deductible contribution is 25% of total covered payroll.
A)
I and II
B)
III and IV
C)
I, II, and III
D)
I, II, III, and IV

Answer 26

All of these statements are correct.

LO 2.3.2

Question 27

In a money purchase pension plan that utilizes plan forfeitures to reduce future employer plan contributions, which of the following components must be factored into the calculation of the maximum annual addition limit?

(CFP® Certification Examination, released 11/94)

Forfeitures that otherwise would have been reallocated
Annual earnings on all employer and employee contributions
Rollover contributions for the year
Employer and employee contributions to all defined contribution plans
A)
IV only
B)
I, II, III, and IV
C)
I, II, and III
D)
I and III

Answer 27

Because the forfeitures will be used to reduce future employer contributions, they will not count against the annual additions limit. Defined contribution plans do not consider earnings on investments when calculating contributions.

LO 2.3.1

Question 28

Target benefit pension plans are defined contribution plans that do which of these?

They require a fixed contribution formula.
They provide a guaranteed retirement benefit.
A)
II only
B)
I only
C)
Both I and II
D)
Neither I nor II

Answer 28

Target benefit pension plans have a fixed contribution formula that is based on an actuarial calculation and the participant’s age at plan inception or plan entrance. Statement II is incorrect. Although the plan is technically a defined contribution plan, its intention is to fund for a targeted benefit at retirement, based on the participant’s age and number of years to retirement. The actual contributions may or may not achieve the targeted benefit; therefore, the retirement benefit is not guaranteed.

LO 2.3.2

Question 29

Target benefit pension plans do which of these?

They best serve the middle-aged, rank-and-file workers.
They guarantee that the targeted benefit will be paid.
They disproportionately benefit the young executive employees in a large, publicly held corporation.
They are appropriate for a corporation that cannot afford a traditional defined benefit pension plan and that has a substantial group of older (age 50+) key employees.
A)
II and III
B)
I only
C)
II and IV
D)
IV only

Answer 29

IV only

An employer hopes to pay, but does not guarantee, the targeted benefit. Such plans allow proportionately greater employer contributions for older employees, due to age-weighting. The target benefit is not guaranteed, and the plan benefits older participants by making higher allocations to the accounts of the older participants.

LO 2.3.2

Question 30

Which of the following statements regarding money purchase pension plans are CORRECT?

The employer makes annual mandatory contributions to each employee’s individual account.
The plan is relatively straightforward and easy to explain to participants.
Annual additions to each employee’s account are limited to the lesser of 100% of compensation, or $66,000 (for 2023).
Generally, employer securities held by the plan cannot exceed 25% of the fair market value (FMV) of the plan assets at the times the securities are purchased.
A)
I, II, III, and IV
B)
I and II
C)
I, II, and III
D)
III and IV

Answer 30

Only Statement IV is incorrect. Generally, employer securities held by the plan cannot exceed 10% of the FMV of the plan assets at the time the securities are purchased.

LO 2.3.1

Question 31

In a cash balance pension plan, which of the following provisions is guaranteed by the employer-sponsor?

A)
The medium of stock as a funding vehicle
B)
A specific monthly pension at normal retirement age
C)
The plan costs
D)
The interest rate credit

Answer 31

d

In a cash balance pension plan, the employer guarantees the crediting of each participant’s (hypothetical) individual account with a specified interest credit and then hopes to achieve a rate of return that is superior to the fixed rate of return. A cash balance pension plan guarantees a specific cash balance at normal retirement age based on the plan benefit formula and guaranteed interest rate credit, but does not guarantee a specific monthly pension benefit. If the plan investment return exceeds the guaranteed rate, the employer is likely to reduce the contributions. Thus, the practical beneficiary of excess returns is often the employer (because subsequent contributions are lower) instead of the plan participants.

LO 2.2.1

Question 32

Which of the following vesting schedules may be used to accrue qualified defined benefit pension plan benefits attributable to regular (non-top-heavy) employer contributions?

A)
100% cliff vesting after 7 years of service
B)
20% vesting after 3 years of service and 100% vesting after 10 years
C)
100% cliff vesting after 5 years of service
D)
30% vesting after 4 years of service and 100% vesting after 12 years

Answer 32

c

Plan benefits attributable to employer contributions for a defined benefit plan must be vested (or nonforfeitable) at least as rapidly as 100% after five years of service. An alternative three- to seven-year graded vesting schedule may also be used.

LO 2.1.2

Question 33

Which of the following statements regarding employer contributions to money purchase pension plans are CORRECT?

Aggregate employer deductible contributions may not exceed 25% of covered compensation.
Money purchase pension plans are not subject to a minimum funding standard.
Plan investment earnings and losses do not affect employer contributions.
Forfeitures may be reallocated to remaining participants.
A)
II, III, and IV
B)
II and IV
C)
I, II, and III
D)
I, III, and IV

Answer 33

d

Money purchase pension plans require mandatory annual funding. Investment earnings and losses do not affect employer contributions. Most pension plans (like money purchase pension plans) are subject to minimum funding standards.

LO 2.3.1

Question 34

Bart’s employer has a defined benefit pension plan. He has worked for the company for 20 years. His highest salaries occurred in the final three years before retirement: $290,000, $300,000, and $325,000.

Without considering the formula used to arrive at his retirement benefit amount, what is Bart’s maximum possible benefit from the defined benefit plan if he retires in 2023?

A)
$268,333
B)
$330,000
C)
$265,000
D)
$305,000

Answer 34

c

Under Section 415 of the Tax Code, there is a limit on the projected annual benefit the plan can provide to the employee-participant at age 65. For 2023, this maximum benefit is the lesser of:

$265,000 of annual compensation; or
100% of the participant’s compensation averaged over their highest three consecutive years of earnings.
Bart’s last three years also contained his highest salaries, and averaged $305,000 [($290,000 + $300,000 + $325,000 maximum) ÷ 3], which is greater than the $265,000 maximum benefit allowed under Section 415. Compensation considered in any qualified plan benefit formula is capped at $330,000 (2023).

LO 2.1.2

Question 35

For 2023, the maximum annual contribution under a money purchase pension plan on behalf of a participant is the lesser of 100% of the employee’s covered compensation, or

A)
$66,000.
B)
$330,000.
C)
$22,500.
D)
$265,000.

Answer 35

The maximum annual contribution for a money purchase pension plan on behalf of a participant is subject to the annual additions limit, which is the lesser of 100% of the participant’s covered compensation, or $66,000 (2023).

LO 2.3.1

Question 36

The employee bears the investment risk in all of the following types of retirement plans except

A)
money purchase pension plans.
B)
traditional profit-sharing plans.
C)
target benefit pension plans.
D)
cash balance pension plans.

Answer 36

d

Employees bear the investment risk in defined contribution plans, and employers bear the investment risk in defined benefit plans. Cash balance pension plans are defined benefit plans; all the other answer choices are defined contribution plans.

LO 2.2.1

Question 37

Great Benx Corporation provides both a defined benefit and money purchase plan for its employees. The defined benefit plan is covered by the Pension Benefit Guarantee Corporation (PBGC). All employees participate in each plan. If the Section 415 limits apply, how do they apply?

A)
The Section 415 limits are applied separately for each plan. The annual additions limit for the money purchase plan in 2023 is 100% of the participant’s compensation or $66,000, whichever is less. The participant’s benefit in the defined benefit plan is limited in 2023 to 100% of the participant’s compensation or $265,000, whichever is less.
B)
Each participant could receive a maximum contribution of 25% of the participant’s compensation for the money purchase plan and a maximum contribution of 100% of the participant’s compensation for the defined benefit plan.
C)
The Section 415 limits no longer apply. These limits were repealed by the Economic Growth and Tax Reconciliation Relief Act (EGTRRA) for qualified plan application.
D)
Under the Section 415 limits, the total contributions to both accounts of a participant are limited to 25% of the participant’s compensation.

Answer 37

a

The answer is the Section 415 limits are applied separately for each plan. The annual additions limit for the money purchase plan in 2023 is 100% of the participant’s compensation or $66,000, whichever is less. The participant’s benefit in the defined benefit plan is limited in 2023 to 100% of the participant’s compensation or $265,000, whichever is less.

LO 2.1.2

Question 38

James, a pilot, founded an airline, Margaritaville Airways, as a sole proprietorship 15 years ago. Six years ago, he hired six employees. Now the business has grown, and he decides to incorporate. The new successor entity, Margaritaville Airways, Inc., offers a defined benefit plan. If a unit benefit formula is used, James wants to know if employees will receive credit for past years of service. Which of the following is CORRECT?

A)
All employees will receive credit for 10 years of past service.
B)
All employees will receive credit for 5 years of past service.
C)
The owner will receive credit for 10 years of service. The employees will receive no credit.
D)
Neither the owner nor the employees will receive any credit for past service.

Answer 38

B

Under IRS safe harbor rules, a successor entity may recognize up to five years of service when establishing a defined benefit plan. The plan may not discriminate in favor of the highly compensated employee-owner(s).

LO 2.1.2

Question 39

All of the following statements regarding target benefit pension plans are correct except

A)
older participants are favored in a target benefit pension plan.
B)
each employee has an individual account.
C)
the plans are covered by Pension Benefit Guaranty Corporation (PBGC) insurance.
D)
minimum funding standards apply.

Answer 39

Target benefit pension plans are defined contribution plans, so they are not covered by PBGC insurance, and employees have their own individual accounts. Because they are pension plans, minimum funding standards apply. Similar to defined benefit plans, target benefit pension plans favor older participants with a larger contribution at plan entry than a younger person joining the firm with the same compensation.

LO 2.3.2

Question 40

Apollo Company sponsors a money purchase pension plan that provides a base contribution of 12.3%. Assuming the integration level equals the Social Security taxable wage base, what is the maximum excess percentage?

A)
25.0%
B)
12.3%
C)
5.7%
D)
18.0%

Answer 40

d

The excess percentage contribution cannot exceed the lesser of two times the base level, or the base percentage plus 5.7%. Therefore, the maximum excess percentage equals 18% (12.3% + 5.7%).

LO 2.3.1

Question 41

Bill’s employer maintains a target benefit pension plan. Bill is age 59. The plan was originally designed to benefit a 38-year-old key employee. There is also substantial turnover at Bill’s company. Which of the following statements is CORRECT?

Bill knows exactly what retirement benefit to expect.
Bill’s retirement benefit is funded through elective deferrals.
Forfeitures are likely to be allocated equally to Bill and the 38-year-old employee.
Annual contributions to the plan are certain.
A)
II, III, and IV
B)
I and III
C)
IV only
D)
II and IV

Answer 41

Only Statement IV is correct. Benefits depend on the plan’s account balances. Forfeitures in a target benefit pension plan are likely to be unequal as a result of unequal compensation. Retirement benefits in a target benefit pension plan are funded by mandatory annual employer contributions.

LO 2.3.2

Question 42

Which of the following statements describe basic provisions of a money purchase pension plan?

As a defined contribution plan, a money purchase plan is not subject to the minimum funding standard.
The employer may deduct a plan contribution up to a maximum of 25% of covered payroll.
The employer contribution generally is allocated based on relative compensation.
Forfeitures from nonvested participants’ accounts must be applied to reduce the employer contribution.
A)
III and IV
B)
I and II
C)
II and III
D)
I, II, and IV

Answer 42

The employer deduction limit for a money purchase plan is 25% of covered payroll, and employer contributions generally are allocated based on relative compensation. A money purchase plan is a pension plan and thus is subject to the minimum funding requirements (mandatory annual contributions). As in any defined contribution plan, the plan may provide for forfeitures either to be reallocated to remaining participants’ accounts or applied to reduce the employer contribution.

LO 2.3.1

Question 43

Porter has reached retirement age, 65, after working for the same employer for 25 years. His employer has a defined benefit pension plan for which the Pension Benefit Guaranty Corporation (PBGC) has assumed financial responsibility. Disregarding Porter’s actual accrued benefit in the plan, what is the maximum annual benefit Porter could receive under PBGC administration of the plan?

A)
$81,000
B)
$265,000
C)
$66,000
D)
$330,000

Answer 43

81k

Notice, this is for the PBGC, not a pension plan in general.

For 2023, the maximum monthly benefit (for those who retire at age 65) guaranteed by the PBGC for any type of defined benefit pension plan for which it assumes financial responsibility is $81,000 annually ($6,750 per month). This amount may be much smaller than the amount otherwise guaranteed to the participant under a fully funded corporate defined benefit pension plan. You are not required to memorize the number, but it is important to know that PBGC guarantees are not unlimited.

LO 2.1.1

Question 44

What is the minimum number of employees a defined benefit plan must benefit to conform to IRS and ERISA regulations?

A)
50 employees
B)
The lesser of 40 employees, or 50% of all eligible employees
C)
The lesser of 50 employees, or 50% of all eligible employees
D)
The lesser of 50 employees, or 40% of all eligible employees

Answer 44

A defined benefit plan must meet an additional test to retain its qualified plan status. The 50/40 test states that the plan must benefit the lesser of 50 employees, or 40% of all eligible employees.

LO 2.1.1

Question 45

An employer-sponsored money purchase pension plan, integrated with Social Security, uses a base contribution formula of 10% for all participants and the Social Security taxable wage base as the integration level. Given this information, what is the maximum permitted excess contribution percentage?

A)
5.7%
B)
10.0%
C)
20.0%
D)
15.7%

Answer 45

The permitted disparity rules for defined contribution plans specify that the maximum excess percentage cannot exceed the lesser of (1) two times the base contribution percentage or (2) the base contribution percentage plus 5.7%. Therefore, the excess contribution percentage is 15.7% (10% + 5.7%).

LO 2.3.1

Question 46

Richard participates in a traditional defined benefit plan at work. His projected monthly benefit under the plan is $1,000. If the plan provides life insurance for Richard, the death benefit payable under the policy is limited to

A)
$25,000.
B)
$100,000.
C)
$35,000.
D)
$50,000.

Answer 46

Defined benefit plans use the 100 times test for determining whether they comply with the incidental benefit rules. Under this test, the death benefit cannot exceed 100 times the participant’s projected monthly benefit (in this instance, $100,000).

LO 2.1.2

Question 47

All of the following are characteristics of traditional defined benefit pension plans except

A)
they are complex to design and operate.
B)
limited benefits are guaranteed by the Pension Benefit Guaranty Corporation (PBGC).
C)
employees assume the risk of poor investment results.
D)
the employer is required to make annual contributions.

Answer 47

c

A traditional defined benefit pension plan guarantees a specific benefit at retirement, and limited benefits are guaranteed by the PBGC. The employer assumes the risk of poor investment results in the plan. If investment results are poor, the employer may have to supply additional funding to assure that the guaranteed benefits are available.

LO 2.1.1

Question 48

Target benefit pension plans are defined contribution plans that do which of these?

They fund for a targeted benefit level.
They require a fixed contribution formula.
They provide a guaranteed retirement benefit.
They adjust the contribution formula annually.
A)
I and II
B)
I and III
C)
III and IV
D)
II, III, and IV

Answer 48

a

Statements I and II are correct. Target benefit pension plans have a fixed contribution formula that is based on an actuarial calculation and the participant’s age at plan inception or plan entrance. The plan allows higher contributions for older participants. Although the plan is technically a defined contribution plan, its intention is to fund for a targeted benefit at retirement, based on the participant’s age and number of years to retirement. The actual contributions may or may not achieve the targeted benefit; therefore, the retirement benefit is not guaranteed. The plan sponsor does not actuarially adjust the participant’s contribution percentage annually.

LO 2.3.2

Question 49

Cheryl is an executive with Chandler Corporation where she has been employed for the past 24 years. Her current salary is $400,000. Chandler’s defined benefit plan provides participants with 25 years of service an 85% of salary annual retirement benefit. Assuming Cheryl’s salary remains at $400,000, what will be the amount of her annual retirement benefit if she retires this year?

A)
$280,500
B)
$340,000
C)
$330,000
D)
$265,000

Answer 49

d

On the basis of years of service and salary, Cheryl would be entitled to a retirement benefit of $280,500 using only the first $330,000 of employee compensation; however, the defined benefit pension plan benefit limit for 2023 is $265,000.

LO 2.1.2

Question 50

Which of these is a type of defined contribution pension plan?

A)
Stock bonus plan
B)
Target benefit pension plan
C)
Cash balance pension plan
D)
Employee stock ownership plan (ESOP)

Answer 50

b

A target benefit plan is a type of defined contribution pension plan. A stock bonus plan and an ESOP are types of defined contribution profit sharing plans. A cash balance plan is a type of defined benefit pension plan.

LO 2.3.2

Question 51

Which of these qualified plans may require the use of the three highest consecutive years’ earnings for purposes of determining the maximum benefit that is promised?

Money purchase pension plan
Stock bonus plan
Profit sharing plan
Traditional defined benefit pension plan
A)
I, II, and IV
B)
I, III, and IV
C)
I and II
D)
IV only

Answer 51

d

Only the traditional defined benefit plan requires the use of the three highest consecutive years of earnings to derive the maximum benefit. This plan provides a promised benefit to participants. Note the difference between the law limiting the maximum defined benefit amount allowed that uses the highest three consecutive years of compensation and the manner in which most defined benefit plans determine the actual benefits received by employees. Actual benefits can be determined in virtually any manner but usually use the highest 3-5 years without requiring that the years be consecutive.

LO 2.1.2

Question 52

Joe, 46, has owned his company for 18 years and wishes to retire at age 70. All of Joe’s employees are older than he is and have an average length of service with the company of eight years. Joe would like to adopt a qualified retirement plan that would favor him and reward employees who have rendered long service. Joe has selected a traditional defined benefit pension plan with a unit benefit formula. Which of these statements regarding Joe’s traditional defined benefit pension plan is CORRECT?

Increased profitability would increase both Joe’s and his employees’ pension contributions.
A unit benefit plan formula allows for higher levels of integration than other defined benefit pension plans.
A unit benefit plan formula rewards older employees who were hired in their 50s or 60s.
A traditional defined benefit pension plan will maximize Joe’s benefits and reward long-term employees based on length of service.
A)
I, II, and IV
B)
II only
C)
IV only
D)
III and IV

Answer 52

C IV only

Statement I is incorrect. Contributions to traditional defined benefit pension plans are not dependent on the profitability of a company. Statement II is incorrect because a unit benefit plan formula will not allow higher integration levels. Statement III is incorrect because a flat percentage formula favors workers without much longevity.

LO 2.1.2

Question 53

Which of the following is a characteristic of a target benefit pension plan?

A)
Allows the employee to select the amount of monthly benefit at retirement
B)
Requires greater employee contributions for older employees
C)
Allows higher contribution levels for older plan participants
D)
Has no limit on employee contributions

Answer 53

Explanation
Under such a defined contribution plan, the employer selects the target benefit. The employer contributes more for older employees. The fixed contribution formula is based on an initial actuarial determination of contributions required to meet a specific targeted benefit level.

LO 2.3.2

Question 54

Which of the following are factors that would be expected to reduce the amount of the retirement benefit from a defined benefit pension plan? (Assume that the plan meets the minimum funding requirements each year.)

Less than 10 years of plan participation
Investment earnings that are lower than expected
Use of a flat-benefit formula rather than a unit benefit formula
Participant’s retirement before age 62
A)
I and IV
B)
I and II
C)
I, II, and IV
D)
II and III

Answer 54

a

Retiring before age 62 or with less than 10 years of plan participation generally will reduce a participant’s retirement benefit from a defined benefit plan. The reduction is usually 10% for each year of service less than 10. While this seems like a very big reduction for these people (and it is), without this provision the cost of hiring someone within ten years of retirement age would be prohibitive and thus people in this situation would rarely be hired. However starting benefits at age 65 or later often means no reduction for having less than 10 years of service. The ​employer is obligated to provide the plan-specified benefit, regardless of whether investments perform as expected. The benefit formula—flat benefit or unit benefit—does not result in a generally lower or higher benefit, as it will depend on the individual participant’s circumstances.

LO 2.1.2

Question 55

Which of these are CORRECT statements about defined contribution pension plans?

They use an indefinite allocation formula.
They provide a benefit that is based on the value of a participant’s account.
They require employer contributions to be made from business earnings.
They require fixed employer contributions according to the terms of the plan.
A)
II and III
B)
II and IV
C)
I and IV
D)
I and II

Answer 55

B

Employer contributions to a defined contribution pension plan (money purchase plan or target benefit plan) must be fixed according to the terms of the plan; e.g., a plan could stipulate that the employer shall contribute an amount equal to 10% of the compensation of each participant. The investment performance of a participant’s account balance determines the value of his or her benefit upon termination or retirement. However, contributions must be made to fund a pension plan, even if an employer has no earnings or profits. Defined contribution plans must also have definitely determinable benefits; i.e., the annual employer contribution to an employee’s account must be fixed or definitely determinable.

LO 2.3.2

Question 56

Which of the following is an advantage of fully insured (Section 412(e)(3)) plans?

A)
Benefits from the plan are guaranteed by the insurance company, with the employer transferring all investment risk to the third party.
B)
The investment return is flexible.
C)
Employer funding is flexible.
D)
Participant loans are available.

Answer 56

The answer is benefits from the plan are guaranteed by the insurance company, with the employer transferring all investment risk to the third party. The investment return is derived solely from the fixed, guaranteed cash value rates in the insurance or annuity policies. Participant loans are not available, and annual plan funding is mandatory, not discretionary.

LO 2.2.2

Question 57

All of the following methods are used by defined benefit plans to calculate the amount of a plan participant’s retirement benefit except

A)
the flat amount formula.
B)
the unit benefit formula.
C)
the flat percentage formula.
D)
the final average method.

Answer 57

d (apparently)

The final average method (also called the career average method) is used to calculate the average earnings used by the benefit formulas to calculate a plan participant’s retirement benefit. The other three choices are the formulas used to actually calculate the participant’s benefit.

LO 2.1.2

Question 58

Which of the following statements regarding a target benefit pension plan is CORRECT?

The services of an actuary are required in the first year of operation.
The plan is funded using the percentage of compensation approach.
Minimum funding standards apply.
A target benefit pension plan is a type of defined benefit pension plan.
A)
I only
B)
II only
C)
I, II, III, and IV
D)
I, II, and III

Answer 58

D

Statement IV is incorrect. A target benefit pension plan is a type of defined contribution pension plan.

LO 2.3.2

Question 59

Which of the following types of qualified retirement plans are subject to the minimum funding requirements?

Defined benefit pension plans
Money purchase pension plans
Profit sharing plans
Target benefit plans
A)
II, III, and IV
B)
I, III, and IV
C)
I and II
D)
I, II, and IV

Answer 59

The only qualified plans exempt from the minimum funding standard are profit sharing plans and stock bonus plans. Section 401(k) provisions are only permitted with profit sharing plans and stock bonus plans.

LO 2.3.2

Question 60

Which of the following is an advantage of fully insured (Section 412(e)(3)) plans?

A)
Benefits from the plan are guaranteed by the insurance company with the employer transferring all investment risk to the third party.
B)
Employer funding is flexible.
C)
Participant loans are available.
D)
There is a flexible investment return.

Answer 60

Benefits from the plan are guaranteed by the insurance company with the employer transferring all investment risk to the third party. The investment return is derived solely from the fixed, guaranteed cash value rates in the insurance or annuity policies. Participant loans are not available, and annual plan funding is mandatory, not discretionary.

LO 2.2.2

Question 61

Which of the following is a basic provision of a money purchase pension plan?

A)
Forfeitures from a nonvested participant’s account must be applied to reduce the employer contribution to the plan.
B)
Forfeitures from a nonvested participant’s account must be reallocated proportionately among remaining plan participants.
C)
In establishing such a plan, the employer typically agrees to make an annual contribution for each eligible employee as a fixed percentage of compensation.
D)
Before-tax salary reductions or elective deferrals are subject to prescribed limitations on amounts.

Answer 61

c

In establishing a money purchase pension plan, the employer agrees to make a fixed annual contribution, usually expressed as a percentage of compensation for each eligible employee.

LO 2.3.1

Question 62

In which of the following types of plans does the employer assume the investment risk?

A)
Target benefit pension plan
B)
Cash balance pension plan
C)
Money purchase pension plan
D)
Profit-sharing plan

Answer 62

b

Traditional defined benefit pension plans and cash balance pension plans are the only types of plans in which the employer assumes the investment risk.

LO 2.2.1

Question 63

Marvin, age 52, is the owner of Ready-Pour Concrete, Inc., a company he started 17 years ago. The 12 rank-and-file employees of Ready-Pour range in age from 22 to 33, and they have from one to three years of service. Typically, employees remain at the company for an average of only one-and-a-half years. Marvin is considering installing a defined benefit plan to ensure his retirement security, and wants to take into account past service.

Which one of the following would apply to the installation of a defined benefit plan with a unit benefit formula at Ready-Pour Concrete Inc.?

A)
The plan would be more favorable to Marvin than it is to the younger employees.
B)
The plan would be more favorable to the younger employees than it is to Marvin.
C)
A unit credit defined benefit plan would provide a greater retirement benefit for rank-and-file employees than would a flat benefit formula plan.
D)
The plan would allow Marvin to exclude employees who have not accrued sufficient units to participate in the plan.

Answer 63

a

Marvin is age 52 and, thus, would benefit from the more substantial funding allowed by a defined benefit plan. In addition, if employee tenure continues to be relatively short, a unit benefit formula allows Marvin to be credited with a significantly higher number of years of service compared to the total years for any of his employees.

LO 2.1.1

Question 64

The following information relates to Elizabeth Chen and her business, Chen Cards Ltd.:

Elizabeth, 48, started her company 15 years ago and does not plan to retire until age 70.
The other Chen Cards Ltd. employees range in age from 45 to 63 and have from one year to eight years of service.
Elizabeth would like to install a qualified plan that would both favor her and reward long-term employees before they retire.
Which one of these is an advantage to Elizabeth of installing a defined benefit plan with a unit benefit formula?

A)
It could reward older employees hired in their 50s or 60s and who are nearer to retirement.
B)
It could both maximize Elizabeth’s benefits and reward long-term employees because benefits are based in part on length of service.
C)
It could maximize Elizabeth’s benefits and give employees incentive to work harder as units of profit are allocated to their accounts.
D)
It could use a higher integration level than other plan types to maximize the owner’s benefits.

Answer 64

b

A unit benefit formula in a defined benefit pension plan will favor employees who have accrued many years of service with the company—in this case, primarily Elizabeth and the long-term employees she would like to reward. Note that Elizabeth founded the company; thus, she has the maximum longevity possible for any employee.

LO 2.1.2

Question 65

A fully insured Section 412(e)(3) pension plan is funded exclusively by

A)
blue-chip stocks.
B)
Treasury bonds.
C)
municipal bonds.
D)
cash value life insurance or annuity contracts.

Answer 65

A fully insured Section 412(e)(3) pension plan is funded exclusively by

A)
blue-chip stocks.
B)
Treasury bonds.
C)
municipal bonds.
D)
cash value life insurance or annuity contracts.

Question 66

Which of the following statements regarding money purchase pension plans are CORRECT?

It is relatively simple and straightforward to explain to potential participants.
Contributions are a specified percentage of each employee’s annual compensation made by the employer.
Annual additions to each employee’s account are limited to the lesser of 100% of compensation, or $66,000 (2023).
Generally, employer securities held by the plan cannot exceed 25% of the FMV of the plan assets at the times the securities are purchased.
A)
I, II, and III
B)
III and IV
C)
I, II, III, and IV
D)
I and II

Answer 66

Only Statement IV is incorrect. Generally, employer securities held by the plan cannot exceed 10% of the FMV of the plan assets at the time the securities are purchased.

LO 2.3.1

Question 67

Ross, age 57, works for Financial Strategies, Inc. The company has a long-established retirement plan. The plan does not require an actuary or Pension Benefit Guaranty Corporation (PBGC) insurance, but the employer is required to make annual mandatory contributions to each employee’s account. What type of retirement plan was established by Financial Strategies?

A)
Target benefit pension plan
B)
Traditional defined benefit pension plan
C)
Money purchase pension plan
D)
Cash balance pension plan

Answer 67

A money purchase pension plan requires annual mandatory employer contributions to each employee’s account, does not require an actuary, and does not require PBGC insurance.

The other choices are incorrect:

A cash balance pension plan requires an actuary and PBGC insurance.
A target benefit pension plan requires an actuary at the inception of the plan, but not on an annual basis.
A traditional defined benefit pension plan requires the services of an actuary annually as well as PBGC insurance.
LO 2.3.1

Question 68

Frank, your client, received a letter from his employer advising him about his retirement plan. In the letter, his employer states that all actuarial assumptions cause a defined benefit plan’s costs to increase. Which of the following actuarial assumptions or methods increase the costs associated with funding a defined benefit plan?

Use of a high interest rate assumption
Use of a low turnover rate assumption
Use of a high mortality assumption
Use of a salary scale assumption
A)
I and III
B)
II, III, and IV
C)
II and IV
D)
I, II, and IV

Answer 68

Statements II and IV are correct for the following reasons. A low turnover rate assumption requires greater funding because more participants are assumed to remain employed and receive benefits. Also, a low turnover rate would mean less reallocated forfeitures. A salary scale assumption requires greater funding because salaries (and hence benefits) are assumed to increase. The higher the interest rate assumption used, the lower the projected cost of funding the plan. Also, the higher the mortality assumption used, the lower the projected cost of funding the plan.

LO 2.1.2

Question 69

Which of the following statements regarding plan forfeitures in a money purchase pension plan is CORRECT?

Plan forfeitures may be used to reduce future employer contributions.
An employer may reallocate the plan forfeitures among the remaining plan participants, increasing their potential individual account balances but only up to the annual additions limit for each participant.
A)
Neither I nor II
B)
I only
C)
Both I and II
D)
II only

Answer 69

Statements I and II are both correct for money purchase pension plans.

LO 2.3.1

Question 70

What is the minimum number of employees that a defined benefit pension plan must benefit to conform to IRS regulations?

A)
50 employees
B)
The lesser of 50 employees, or 50% of all employees
C)
The lesser of 40 employees, or 50% of all employees
D)
The lesser of 50 employees, or 40% of all eligible employees

Answer 70

A defined benefit plan must meet an additional test to retain its qualified plan status. This test, the 50/40 test, states that the plan must benefit the lesser of 50 employees or 40% of all eligible employees. Think people before percentages. Also, there are no qualifications on the types of employees (like HCE/non-HCE, etc.). It is just 50 humans. The percentage test here is 40% of the eligible humans. Naturally, ineligible employees would not count.

LO 2.1.1

Question 71

Which of the following is a type of traditional defined benefit pension plan?

A)
A fully insured Section 412 (e)(3) pension plan
B)
A target benefit pension plan
C)
An employee stock ownership plan (ESOP)
D)
A money purchase pension plan

Answer 71

This is a type of traditional defined benefit pension plan. The other types of plans noted are defined contribution plans, including the money purchase pension plan.

LO 2.2.2

Question 72

The employer contribution allowed by a money purchase plan is usually a very positive characteristic from an employer’s tax planning perspective. Why would an employer NOT want to install this type of plan?

A)
Tax benefits typically fluctuate from year to year in this type of plan.
B)
The contribution of a specified percentage is mandatory.
C)
The employer must bear the investment risk for the plan.
D)
It is difficult to communicate the plan to employees.

Answer 72

b (?)

The answer is the contribution of a specified percentage is mandatory. A money purchase plan allows a sizeable contribution from employers; however, there is no flexibility in years when profits and/or cash flows are minimal. The contribution must be made, or the plan’s tax-qualified status could be withdrawn. A money purchase pension plan maintains individual participant accounts, so the employees bear the investment risk, not the employer. Money purchase pension plans are considered easy to communicate to employees. If the plan maintains its tax-qualified status, the tax benefits are known year to year.

LO 2.3.1

Question 73

Your client, the chief financial officer of a new company, wishes to install a retirement plan in the company in which the pension benefits to employees are guaranteed by the Pension Benefit Guaranty Corporation (PBGC). Identify the plan(s) which must meet this requirement.

Profit-sharing plan
Money purchase plan
Target benefit plan
Defined benefit plan
A)
I and II
B)
III and IV
C)
II and III
D)
IV only

Answer 73

Only two defined benefit pension plans (defined benefit and cash balance) have PBGC insurance.

LO 2.1.1

Question 74

Which one of these describes a basic provision of qualified retirement plan contribution or benefit calculations?

A)
The plan must define its normal retirement age as the Social Security full retirement age.
B)
A career-pay provision generally results in a plan benefit that reflects the impact of inflation. ​
C)
A final-pay provision generally results in a higher benefit for the employee.
D)
Compensation is limited to $265,000 in 2023.

Answer 74

cccc

A defined benefit plan can base the retirement benefit on the employee’s average pay over the employee’s career or over the final three or five years. The final-pay provision is generally a higher amount, reflecting the impact of inflation in recent years. The plan’s normal retirement age does not necessarily have to be the Social Security full retirement age. The compensation limit is $330,000 in 2023. The defined benefit limit is the lesser of 100% of the plan participant’s high three years or $265,000 in 2023.

LO 2.1.2

Question 75

All of the following are characteristics of traditional defined benefit pension plans except

A)
employees assume the risk of poor investment results.
B)
the plans are complex to design and operate.
C)
a limited benefit is guaranteed by the Pension Benefit Guaranty Corporation (PBGC).
D)
the employer is required to make annual contributions.

Answer 75

A

A traditional defined benefit pension plan guarantees a specific benefit level at retirement, so the employer assumes the risk of poor investment results in the plan. If investment results are poor, the employer may have to supply additional funding to ensure that the guaranteed benefits are available.

LO 2.1.1

Question 76

All of the following statements describe situations in which a target benefit pension plan would best suit the company except

A)
recent economic success and the likelihood of continued success.
B)
as an alternative to a traditional defined benefit pension plan, but with considerably less administration expenses.
C)
an employee census showing young owners and older rank-and-file employees.
D)
a workforce primarily comprising older, well-paid owner-employees and key employees.

Answer 76

c

A good candidate for a target benefit pension plan is a business that has an employee census showing a mix of employees, including older owners and younger rank-and-file employees. The other choices are additional characteristics that describe good candidates for target benefit pension plans.

LO 2.3.2