Topic 10 Risk

Question 1

What is Part A Medicare?

Answer 1

Hospital Benefits
- Inpatient (person who stays in hospital while under treatment)
- Post-hospital home care
- Hospice care
- Coverage is free, so pay a deductible (approx. $2,000)

Question 2

What are the parts of Medicare?

Answer 2

Parts A, B, and D
*Part C as well, but part C is just a bundled plan sold by insurance companies that include parts A , B, and C

Question 3

What is Part B Medicare?

Answer 3

Medical Benefits
- Monthly premium (approx. $105 a month)
- Covers most non-hospital expenses except:
- Routine physicals
- Routine eye, foot, and ear care
- Immunizations
- RX (medical prescription)
- Hospital

Question 4

What is Part D Medicare?

Answer 4

• Effective in 2006
• Participants must enroll and pay a monthly premium and a portion of each prescription. Also must have a part A and part B to be eligible.

Question 5

When was Social Security enacted?

Answer 5

1935

Question 6

When was Medicare enacted?

Answer 6

1965

Question 7

What are the parts of the Social Security program?

Answer 7

Old age (OA), Survivors (S), Disability (D)

Question 8

What are the aspects of old age (OA) with social security?

Answer 8

• Retirement benefits
• Amount based on earnings
• The normal retirement age is 67 (anyone born after 1960)

Question 9

What are the aspects of survivors (S) with social security?

Answer 9

• Coverage for the survivor of a fully insured worker
• Widows/Widowers or surviving divorced spouse’s benefits
• Child’s benefits
• Lump-sum death payment

Question 10

What are the aspects of disability (D) with social security?

Answer 10

• If an insured worker is disabled/becomes disabled
• Or dependent of worker (spouse/child)
• Definition is strict - not as liberal as regular insurance/ee benefit display policies

Question 11

What is a rollover?

Answer 11

When the owner takes funds out of one account and places them in another qualified retirement account

Question 12

What is allowed with a rollover?

Answer 12

• Transfer from one IRA to another IRA
• 401k to IRA
• Transfer from one 401k to another 401k
  **Can not transfer IRA into 401k

Question 13

What is a defined benefit plan?

Answer 13

Aka Pension Plans
- Known formula that determines benefit at retirement

Question 14

What are the unknown aspects of the defined benefit plan?

Answer 14

• How much it will cost an employer in any given year
• Plan termination insurance sold by the PBGC - Is required for private companies with DB Plans under ERISA

Question 15

What is a Defined contribution plan?

Answer 15

• EE defers a portion of their gross salary via a pre-tax payroll deduction to the plan
• Employers can match the contributions up to a certain amount if they choose (they usually do)
• Salary reduction - use pre-tax dollars
• 401(k) in for-profit company
• 403 (b) for non-profits

Question 16

When can funds be withdrawn from a 401k or an IRA?

Answer 16

Funds cannot be withdrawn before age 59.5 except in the case of death or disability
*There is a 10% penalty for early distribution
*Amount withdrawn after 59.5 is only taxed as ordinary income

Question 17

What is vesting?

Answer 17

An incentive program for EE that gives stock options, when they have contractually fulfilled a specified term of employment

Question 18

What is cliff vesting?

Answer 18

Gives the employee ownership of 100% of the employer’s contributions all at once after a certain number of years
Ex) After three years, the employee gets to keep all of the ER’s contributions

Question 19

What is graded vesting?

Answer 19

Gives the employee ownership of a percentage of the employer’s contribution each year
Ex) 20% vested after 2 years
40% vested after 3 years
60% vested after 4 years
80% vested after 5 years
100% vested after 6 years
Ex) EE has been working with the company for four years
- She has contributed $60,000 to her 401k
- The ER has made contributions of $40,000
- EE can keep $24,000 under graded vesting

Question 20

What’s the maximum you can put into an IRA annually?

Answer 20

$7,000 annually in 2024 max

Question 21

What’s the maximum that you can put into a 401k plan manually?

Answer 21

$23,000 in 2024 annually

Question 22

What is known and unknown with a defined contribution plan?

Answer 22

Known: Annual ER contribution
Unknown: Annual retirement benefit received at retirement

Question 23

What is NRA?

Answer 23

Normal retirement age
- The earliest age at which EE’s can retire and receive full benefits
*If you were born in 1960 or later this age is 67

Question 24

What is early retirement age?

Answer 24

• Earliest age at which an EE may retire and receive some benefit
  *Typically paid a reduced benefit

Question 25

What is late retirement age?

Answer 25

Retirement after the normal age
*ER should increase benefits but is not legally required to do so

Question 26

What is the main aspect of a defined benefit plan?

Answer 26

ER funds and guarantees a specific retirement benefit amount for each participant of a defined-benefit pension plan.

Question 27

What is the main aspect of a defined contribution plan?

Answer 27

Defined-contribution plans are funded primarily by the EE, as the participant defers a portion of their gross salary; ER’s can match the contributions up to a certain amount, if they choose