Unit 7 Test

Question 1

Which plan involves an employer adding a certain sum to a pension trust each period, based on a formula?

Answer 1

Defined contribution plan

For a defined contribution plan, the employer agrees to contribute.

Question 2

A company provides employees with a noncontributory defined benefit plan as part of the overall compensation package.

Which characteristic is associated with this type of plan?

Answer 2

The company is at risk for payments falling short of the future benefits.

An employer is not at risk for a short fall in defined contribution plans but is at risk for defined benefit plans falling short of projections.

Question 3

A company has a pension plan where the employer agrees to fund a fixed amount to a pension trust each pay period. The payment is based on a formula that considers the employees’ age, length of service, salaries, and employer’s profits.

What is the name for this type of pension plan?

Answer 3

Defined contribution

Question 4

Which category is considered in a defined contribution plan?

Answer 4

Employer payments

Question 5

Which type of U.S. pension plan has grown in the number of active participants over the past 40 years?

Answer 5

Defined contribution plans

Defined contribution plans have become much more popular with employers than defined benefit plans due to lower employer costs.

Question 6

Which factor is considered when calculating an employee’s pension payment in a defined benefit plan?

Answer 6

Length of service

In a defined benefit plan, employees receive benefits based on length of service and salary.

Question 7

A company includes a pension plan as part of its overall compensation package. The employer bears the entire cost of the plan.

Which type of plan is described in this scenario?

Answer 7

Noncontributory plan

Question 8

A company includes a pension plan as part of its overall compensation package. Employees may voluntarily make payments to increase benefits, and they assume part of the cost of the benefits.

Which type of plan is described in this scenario?

Answer 8

Contributory plan

Question 9

Which factor is a function of the defined benefit plan funding model for each employee’s benefit?

Answer 9

Employee’s compensation level

Employee benefits are a function of an employee’s compensation level for a defined benefit plan.

Question 10

A company provides a pension plan to eligible new hires. Pension payments are typically based on the employee’s years of service and the compensation level as the employee approaches retirement. It is the responsibility of the employer to pay any shortfall in the accumulated assets held by the trust.

Which type of plan is described in the scenario?

Answer 10

Defined benefit plan