Question 1

Describe the players chosen by a plan sponsor to manage the defined-benefit pension assets.

Accepted Answer

A plan sponsor chooses one of the following to manage the defined-benefit pension assets under its control:(1) use in-house staff to manage all the pension assets itself, (2) distribute the pension assets to one or more money management firms to manage, or (3) combine alternatives (1) and (2). Public pension funds typically manage a good portion of their assets internally.

Question 2

ERISA created the Pension Benefit Guaranty Corporation (PBGC) to insure vested pension benefits.

Accepted Answer

A) True 
 B)False  True

Question 3

The magnitude of pension ________ suggests that it poses the greatest financial danger facing managers since the S&L crisis.

Accepted Answer

A)  solvency 
B)  surplus 
C)  overfunding 
D)  underfunding 
A)  solvency 
B)  surplus 
C)  overfunding 
D)  underfunding D

Question 4

The aggregate asset mix of the 1,000 top defined-benefit and defined-contribution pension plans as of September 30, 2007, indicate that the asset allocations for corporate and public defined-benefit plans are very similar, with approximately ________ of their assets in U.S. stocks and bonds.

Accepted Answer

A)  65% 
B)  60% 
C)  55% 
D)  50% 
A)  65% 
B)  60% 
C)  55% 
D)  50%

Question 5

Explain the "prudent man" concept.

Accepted Answer

ERISA established fiduciary standards fo

Question 6

In addition to money managers, advisors called plan sponsor consultants provide other advisory services to pension plan sponsors. Which of the below is NOT a service that consultants provide to advisors?

Accepted Answer

A)  Consultants give general and comprehensive research 
B)  Consultants give actuarial advice (liability modeling and forecasting) 
C)  Consultants measure and monitor the performance of the fund's money managers 
D)  Consultants search for and recommend money managers to pension plans 
A)  Consultants give general and comprehensive research 
B)  Consultants give actuarial advice (liability modeling and forecasting) 
C)  Consultants measure and monitor the performance of the fund's money managers 
D)  Consultants search for and recommend money managers to pension plans

Question 7

Qualified pension funds invest in assets that have the advantage of being largely or completely tax exempt.

Accepted Answer

A) True 
 B)False

Question 8

The purpose of the Pension Funding Equity Act of 2006 was to give U.S. companies some "relief" from burdensome pension contributions.

Accepted Answer

A) True 
 B)False

Question 9

In regards to the defined-benefit pension assets under its control, a plan sponsor chooses ________.

Accepted Answer

A)  to use out-of-house staff to manage all the pension assets itself. 
B)  to use in-house staff to manage part of the pension assets. 
C)  to distribute the pension assets to one money management firm to manage. 
D)  to distribute the pension assets to one or more money management firms to manage. 
A)  to use out-of-house staff to manage all the pension assets itself. 
B)  to use in-house staff to manage part of the pension assets. 
C)  to distribute the pension assets to one money management firm to manage. 
D)  to distribute the pension assets to one or more money management firms to manage.

Question 10

The great success of private pension plans is somewhat surprising because the system involves investing in an asset (i.e., the pension contract) that for the most part is very liquid.

Accepted Answer

A) True 
 B)False

Question 11

A ________ is a fund that is established for the eventual payment of retirement benefits.

Accepted Answer

A)  pension plan 
B)  benefit plan 
C)  health plan 
D)  social security plan 
A)  pension plan 
B)  benefit plan 
C)  health plan 
D)  social security plan

Question 12

The first part of the Pension Protection Act of 2006 (PPA) modified ERISA. Which of the below was NOT a major modification?

Accepted Answer

A)  It required underfunded plans to pay additional premiums to the Pension Benefit Guaranty Corporation (PBG
C) . 
B)  It tightened the requirement for companies terminating their pension plans to provide extra funding to the pension system. 
C)  It closed loopholes that allowed underfunded plans to skip pension payments. 
D)  It required that companies measure their pension plan obligations more accurately. 
A)  It required underfunded plans to pay additional premiums to the Pension Benefit Guaranty Corporation (PBG
C) . 
B)  It tightened the requirement for companies terminating their pension plans to provide extra funding to the pension system. 
C)  It closed loopholes that allowed underfunded plans to skip pension payments. 
D)  It required that companies measure their pension plan obligations more accurately.

Question 13

To ensure that a pension plan is in compliance with ________, periodic reporting and disclosure statements must be filed with these government agencies.

Accepted Answer

A)  a 401-K plan 
B)  IRS regulations 
C)  PBGC 
D)  ERISA 
A)  a 401-K plan 
B)  IRS regulations 
C)  PBGC 
D)  ERISA

Question 14

Corporate plan sponsors are inclined to employ as their discount rate for pension liabilities the highest interest rate that will pass muster with ________ (for funding purposes) and also with their external ________ (for accounting purposes).

Accepted Answer

A)  ERISA; cash flow statement 
B)  the IRS; accounting GAAP 
C)  PBGC; balance sheet statement 
D)  the IRS; cash flow statement 
A)  ERISA; cash flow statement 
B)  the IRS; accounting GAAP 
C)  PBGC; balance sheet statement 
D)  the IRS; cash flow statement

Question 15

The largest share of both defined-benefit and defined-contribution pension fund assets is invested in common stocks, often a U.S. stock index.

Accepted Answer

A) True 
 B)False

Question 16

The Social Security Act of 1935 provided employers with a safe harbor from certain parts of ERISA.

Accepted Answer

A) True 
 B)False

Question 17

Describe the essence of a qualified fund.

Accepted Answer

Qualified pension funds are exempt from

Question 18

The ________ enables employees to obtain more investment advice for their employers by removing the fiduciary liability based on the perceived conflict of interest of self-interested investment advice provided by the employer.

Accepted Answer

A)  Employee Retirement Income Security Act (ERIS
A)  of 1974 
B)  Pension Benefit Guaranty Corporation (PBG
C)  established in 1974 
C)  Social Security Benefit Act of 1935 
D)  Pension Protection Act of 2006 (PP
A)  
A)  Employee Retirement Income Security Act (ERIS
A)  of 1974 
B)  Pension Benefit Guaranty Corporation (PBG
C)  established in 1974 
C)  Social Security Benefit Act of 1935 
D)  Pension Protection Act of 2006 (PP
A)

Question 19

A major provision of the Employee Retirement Income Security Act of 1974 (ERISA) is the establishment of ________.

Accepted Answer

A)  funding standards for the minimum contributions that a plan sponsor must make to the pension plan to satisfy the actuarially projected benefit payments. 
B)  fiduciary standards for pension fund trustees, managers, and advisors. 
C)  minimum vesting standards. 
D)  All of these 
A)  funding standards for the minimum contributions that a plan sponsor must make to the pension plan to satisfy the actuarially projected benefit payments. 
B)  fiduciary standards for pension fund trustees, managers, and advisors. 
C)  minimum vesting standards. 
D)  All of these

Question 20

With respect to the Pension Funding Equity Act of 2004, the act was a boon to companies and solved the serious problems plaguing pension funding.

Accepted Answer

A) True 
 B)False

Exam 8: Pension Funds

Describe the players chosen by a plan sponsor to manage the defined-benefit pension assets.

ERISA created the Pension Benefit Guaranty Corporation (PBGC) to insure vested pension benefits.

The magnitude of pension ________ suggests that it poses the greatest financial danger facing managers since the S&L crisis.

The aggregate asset mix of the 1,000 top defined-benefit and defined-contribution pension plans as of September 30, 2007, indicate that the asset allocations for corporate and public defined-benefit plans are very similar, with approximately ________ of their assets in U.S. stocks and bonds.

Explain the "prudent man" concept.

In addition to money managers, advisors called plan sponsor consultants provide other advisory services to pension plan sponsors. Which of the below is NOT a service that consultants provide to advisors?

Qualified pension funds invest in assets that have the advantage of being largely or completely tax exempt.

The purpose of the Pension Funding Equity Act of 2006 was to give U.S. companies some "relief" from burdensome pension contributions.

In regards to the defined-benefit pension assets under its control, a plan sponsor chooses ________.

The great success of private pension plans is somewhat surprising because the system involves investing in an asset (i.e., the pension contract) that for the most part is very liquid.

A ________ is a fund that is established for the eventual payment of retirement benefits.

The first part of the Pension Protection Act of 2006 (PPA) modified ERISA. Which of the below was NOT a major modification?

To ensure that a pension plan is in compliance with ________, periodic reporting and disclosure statements must be filed with these government agencies.

Corporate plan sponsors are inclined to employ as their discount rate for pension liabilities the highest interest rate that will pass muster with ________ (for funding purposes) and also with their external ________ (for accounting purposes).

The largest share of both defined-benefit and defined-contribution pension fund assets is invested in common stocks, often a U.S. stock index.

The Social Security Act of 1935 provided employers with a safe harbor from certain parts of ERISA.

Describe the essence of a qualified fund.

The ________ enables employees to obtain more investment advice for their employers by removing the fiduciary liability based on the perceived conflict of interest of self-interested investment advice provided by the employer.

A major provision of the Employee Retirement Income Security Act of 1974 (ERISA) is the establishment of ________.

With respect to the Pension Funding Equity Act of 2004, the act was a boon to companies and solved the serious problems plaguing pension funding.

Introduction

Financial Institutions, Financial Intermediaries, and Asset Management Firms

Depository Institutions: Activities and Characteristics

The U.S. Federal Reserve and the Creation of Money

Monetary Policy in the United States

Insurance Companies

Investment Companies and Exchange Traded Funds

Properties and Pricing of Financial Assets

The Level and Structure of Interest Rates

The Term Structure of Interest Rates

Risk/Return and Asset Pricing Models

Primary Markets and the Underwriting of Securities

Secondary Markets

Treasury and Agency Securities Markets

Municipal Securities Markets

Markets for Common Stock: The Basic Characteristics

Markets for Common Stock: Structure and Organization

Markets for Corporate Senior Instruments: I

Markets for Corporate Senior Instruments: II

The Markets for Bank Obligations

The Residential Mortgage Market

Mortgage-Backed Securities Market

Market for Commercial Mortgage Loans and Commercial Mortgage-Backed Securities

Market for Asset-Backed Securities

Financial Futures Markets

Options Markets

Pricing of Futures and Options Contracts

The Applications of Futures and Options Contracts

OTC Interest Rate Derivatives: Forward Rate Agreements, Swaps, Caps, and Floors

Market for Credit Risk Transfer Vehicles: Credit Derivatives and Collateralized Debt Obligations

The Market for Foreign Exchange and Risk Control Instruments

Filters

Corporate plan sponsors are inclined to employ as their discount rate for pension liabilities the highest interest rate that will pass muster with (for funding purposes) and also with their external (for accounting purposes).