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1.Which of the following statements typifies defined contribution plans?
A)Investment risk is borne by the corporation sponsoring the plan.
B)The plans are more complex than defined benefit plans.
C)Present value factors are used to determine the annual contributions to the plan.
D)The employer's obligation is satisfied by making the periodic contribution to the plan.
2.Which of the following is not a characteristic of a qualified pension plan?
A)It can be limited to highly-compensated salaried employees.
B)It must be funded in advance of retirement.
C)Benefits must vest after a specified period of service.
D)It must cover at least 70% of employees.
3.Which of the following describes defined benefit pension plans?
A)The investment risk is borne by the employee.
B)The plans are simple and easy to construct.
C)The investment risk is borne by the employer.
D)Retirement benefits depend on the individual's account balance.
4.Annual pension expense is decreased by:
A)Amortization of prior service cost.
B)Amortization of unrecognized net gain.
C)Benefits paid to retired employees.
D)Prior service cost.
5.The accounting for defined contribution pension plans is easy because each year:
A)The employer records pension expense equal to the amount paid out to retirees.
B)The employer records pension expense based on an amount provided by the actuary.
C)The employer records pension expense equal to the annual contribution.
D)The employer records pension expense based on the earnings of the plan assets.
6.Which of the following is a correct statement concerning the present reporting of the pension plan on the face of the balance sheet?
A)Only the plan assets are reported.
B)Only the pension obligation is reported.
C)Both the pension obligation and the plan assets are reported.
D)Neither the pension obligation nor the plan assets are reported.
1.Which of the following statements typifies defined contribution plans?
D)The employer's obligation is satisfied by making the periodic contribution to the plan.
The amount of the contribution is determined by the corporation (within given limits), not the actuarial future of the participants.
2.Which of the following is not a characteristic of a qualified pension plan?
A)It can be limited to highly-compensated salaried employees.
Qualified means acceptable under ERISA which cannot allow discrimination towards highly-paid employees. If such a plan was instituted, the contributions would not be deducted expenses for purposes of income tax, which is one of the ways enforcement is managed.
3.Which of the following describes defined benefit pension plans?
D)Retirement benefits depend on the individual's account balance.
I considered A) as the answer but realized that investment risk speaks to the fund administrator, not the employee. There are other risks to the employee outside the scope of the plan such as life expectancy, cost of living increases, etc.
4.Annual pension expense is decreased by:
D)Prior service cost.
This means an entry in the current year for adjustments in the prior year which usually occur after the pension specialists finish their gyrations.
5.The accounting for defined contribution pension plans is easy because each year:
B)The employer records pension expense based on an amount provided by the actuary
See above.
6.Which of the following is a correct statement concerning the present reporting of the pension plan on the face of the balance sheet?
B)Only the pension obligation is reported.
But what about the pension expense to the corporation? It's on the income statement, not the balance sheet. What about the pension assets? They are reported under the separate legal entity called the pension plan.
