CBP Retirement and Pension Plans 1 — Questions and Answers
Question 1: What is the primary regulatory statute governing private-sector retirement and welfare benefit plans in the United States?
- IRC
- ERISA (Correct answer)
- COBRA
- PBGC Act
Correct answer: ERISA
ERISA (Employee Retirement Income Security Act of 1974) sets minimum standards for most voluntarily established retirement and health plans in the private sector.
Question 2: In a defined benefit pension plan, the retirement benefit is based primarily on:
- Investment performance of employee contributions
- A formula using salary history and years of service (Correct answer)
- The amount the employee contributes each year
- Social Security integration credits only
Correct answer: A formula using salary history and years of service
Defined benefit plans promise a specific monthly benefit at retirement calculated using a formula that typically considers years of service and final average salary.
Question 3: What is the maximum annual elective deferral limit for a 401(k) plan for employees under age 50 (2024)?
- $19,500
- $20,500
- $22,500
- $23,000 (Correct answer)
Correct answer: $23,000
For 2024, the IRS set the annual 401(k) elective deferral limit at $23,000 for employees under age 50.
Question 4: Which vesting schedule requires an employee to be fully vested after no more than 3 years of service?
- Graded vesting
- Cliff vesting (Correct answer)
- Immediate vesting
- Rolling vesting
Correct answer: Cliff vesting
Under cliff vesting, an employee becomes 100% vested all at once after a set period, and ERISA requires this cliff to occur no later than after 3 years of service.
Question 5: Which government agency insures defined benefit pension plan benefits up to statutory limits if a plan terminates?
- ERISA Board
- DOL
- PBGC (Correct answer)
- SEC
Correct answer: PBGC
The Pension Benefit Guaranty Corporation (PBGC) insures defined benefit pension plan benefits and pays guaranteed amounts if a covered plan terminates without sufficient assets.
Question 6: What distinguishes a 401(k) plan from a profit-sharing plan?
- Only profit-sharing plans allow employer contributions
- 401(k) plans include an elective deferral feature for employees (Correct answer)
- Profit-sharing plans have higher contribution limits
- 401(k) plans are only available to nonprofit employers
Correct answer: 401(k) plans include an elective deferral feature for employees
A 401(k) plan is a type of profit-sharing plan that includes a cash-or-deferred arrangement (CODA), allowing employees to elect to defer a portion of their compensation.
CBP Retirement and Pension Plans 1
What is the primary regulatory statute governing private-sector retirement and welfare benefit plans in the United States?