CRPC Social Security and Pensions 5 — Questions and Answers
Question 1: A client's defined benefit pension uses a unit-credit formula of 1.5% × years of service × final average salary. With 25 years of service and a $80,000 final average salary, what is the annual pension benefit?
- $24,000
- $28,000
- $30,000 (Correct answer)
- $32,000
Correct answer: $30,000
1.5% × 25 × $80,000 = $30,000 annual benefit.
Question 2: Under Social Security, what is the maximum family benefit (MFB) expressed as a percentage range of the worker's PIA?
- 100% to 150%
- 150% to 188% (Correct answer)
- 100% to 200%
- 125% to 175%
Correct answer: 150% to 188%
The maximum family benefit ranges from approximately 150% to 188% of the worker's PIA depending on the PIA bend points.
Question 3: Which pension distribution option provides the highest monthly payment but ceases entirely upon the retiree's death?
- Joint and 100% survivor annuity
- Life annuity (straight life) (Correct answer)
- 10-year period certain annuity
- Joint and 50% survivor annuity
Correct answer: Life annuity (straight life)
A straight life annuity pays the maximum monthly amount but provides no survivor benefit after the retiree's death.
Question 4: A 63-year-old client with a non-covered state pension wants to claim Social Security spousal benefits. The GPO will offset the spousal benefit by what fraction of the pension amount?
- One-half
- Two-thirds (Correct answer)
- Three-quarters
- The full pension amount
Correct answer: Two-thirds
The Government Pension Offset reduces Social Security spousal benefits by two-thirds of the non-covered government pension.
Question 5: Under ERISA's minimum participation standards, an employee must generally be allowed to participate in a pension plan when they reach what age and complete what service requirement?
- 21 years old with 1 year of service (Correct answer)
- 25 years old with 2 years of service
- 18 years old with 6 months of service
- 21 years old with 2 years of service for DB plans
Correct answer: 21 years old with 1 year of service
ERISA's general minimum participation standard requires plans to cover employees who are at least 21 and have completed 1 year of service.
Question 6: What is the Social Security 'break-even' analysis used to determine in retirement planning?
- The age at which cumulative lifetime benefits from delayed claiming equal those from early claiming (Correct answer)
- The point at which Social Security taxes paid equal benefits received
- The age when Medicare Part B premiums offset Social Security COLA increases
- When the earnings test no longer applies to a retiree's income
Correct answer: The age at which cumulative lifetime benefits from delayed claiming equal those from early claiming
Break-even analysis identifies the age at which total lifetime benefits from a later start date surpass total benefits from an earlier start date.
Question 7: A pension plan amendment significantly reduces the future benefit accrual rate for existing participants. Under ERISA, what protection applies to benefits already accrued?
- Accrued benefits may be reduced prospectively with 60 days' notice
- Accrued benefits are protected and cannot be reduced or eliminated by plan amendment (Correct answer)
- Only vested accrued benefits are protected; unvested benefits can be cut
- Benefits accrued within the last 2 years can be reduced
Correct answer: Accrued benefits are protected and cannot be reduced or eliminated by plan amendment
ERISA's anti-cutback rule (Section 204(g)) prohibits any plan amendment that reduces or eliminates benefits already accrued by participants.
CRPC Social Security and Pensions 5
A client's defined benefit pension uses a unit-credit formula of 1.5% × years of service × final average salary.
With 25 years of service and a $80,000 final average salary, what is the annual pension benefit?