Chapter 27
Pension Fund Operations
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1. Public pension funds can be:
a. state.
b. local.
c. federal.
d. state, local, or federal.
2. With a __________ plan, contributions are dictated by the benefits that will eventually be provided.
a. defined-benefit
b. defined-contribution
c. public pension
d. private pension
3. Regarding defined-contribution and defined-benefit plans, __________ plans are larger in number, and ________ plans have more participants.
a. defined-contribution; defined-benefit
b. defined-benefit; defined-contribution
c. defined-benefit; defined-benefit
d. defined-contribution; defined-contribution
4. The fixed payments resulting from a pension plan are not dependent on:
a. salary levels.
b. retirement ages.
c. life expectancies.
d. Payments are dependent on all of the above.
5. Sometimes pension funds become ________ because of a rate of return projection that was too _________.
a. overfunded; optimistic
b. underfunded; pessimistic
c. underfunded; optimistic
d. Answers a and b are correct.
6. Which of the following is a vesting schedule option of the Employee Retirement Income Security Act (ERISA)?
a. 100% vesting after 5 years of service
b. graded vesting, with 50% vesting after 5 years of service, increasing 5% per year thereafter
c. 50% vesting when a participant's age and years of service sum to 45, increasing by 20 percent per year to 100% vesting 5 years later
d. All of the above are vesting schedule options of ERISA.
7. Which of the following statements is
not
true with respect to the Pension Benefit Guarantee Corporation (PBGC)?
a. Its establishment was a final result of ERISA.
b. Its main purpose is to provide insurance on pension plans.
c. It is a state-chartered agency.
d. It is partially financed by annual premiums.
8. ________ funding offers managers more flexibility in constructing a pension portfolio that can benefit from expected market and interest rate movements.
a. Matched
b. Mixed
c. Projective
d. none of the above
9. If a pension plan is managed by the trust department of a financial institution, it may specify guidelines that include:
a. the percentage of the portfolio that should be used for stocks or bonds.
b. a desired minimum rate of return on the overall portfolio.
c. the maximum amount to be invested in real estate.
d. all of the above
10. ________ sometimes manage pension funds.
a. Commercial banks
b. Mutual funds
c. Brokerage firms
d. Investment banking firms
11. Pension funds do not participate in the ______ market.
a. money
b. bond
c. futures
d. Pension funds participate in all of the above.
12. The best-known government pension fund is Social Security.
a. True.
b. False.
13. In recent years, defined-benefit plans have commonly been replaced by defined-contribution plans.
a. True.
b. False.
14. When companies experience problems, they often eliminate their pension contributions.
a. True.
b. False.
15. Pension plans managed by life insurance companies are called insured plans.
a. True.
b. False.
16. Pension funds are not very concerned about interest rate risk.
a. True.
b. False.
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