Employee Benefits: Retirement

Gross pay refers to the actual money that you take home to your family.

• True

• False

Identify all factors that are important when determining a retirement savings goal?

• Desired lifestyle

• Spending & Saving habits

• Desired age for retirement

• Potential spouse's income

Financial advisors recommend that investors set aside this percentage of their income for retirement.

• 5%

• 10%

• 15%

• It doesn't matter. Any amount is sufficient.

How is a defined benefit plan different from a defined contribution plan?

A way that a defined benefit plan is different from a defined contribution plan is that:

• An employee is solely responsible for contributing to it.

• An employer is solely responsible for contributing to it.

• It's provided by all employers currently.

• Both employer and employee contribute to it.

Identify one example of a defined benefit plan.

• 401(k)

• Social Security

• Pension

• Traditional and Roth Individual Retirement Accounts

Contributing money "pre-tax" to a 401(k) or Traditional Individual Retirement Account (IRA) is better to some people. Why? Identify all correct justifications.

• Because potentially less income tax will need to be paid to the government.

• Because this lowers a person's "taxable income" (i.e., the amount of income subject to tax).

• Because the person expects to earn more when s/he/they retire.

The biggest benefit of making contributions to a 401(k) or Roth IRA after taxes (i.e., with your net pay), is:

• You have control over how much you contribute and can adjust as needed without any difficulty.

• Withdrawals from both accounts will be taxed less while in retirement.

• Withdrawals from both accounts are tax-free while in retirement.

In this type of retirement account, some employers can match the percentage of your contributions to it.

• Pension

• 401(k)

• Traditional IRA

• Roth IRA

Select all that are true about employer matching contributions:

• All employers will match their employees contributions.

• Employers generally set a limitation (e.g., percentage) on how much they will contribute.

• If an employee doesn't contribute the maximum that his/her/their employer will contribute, then the employee is losing money.

• If/when you leave your employer, you have a legal right to take both your own and employer's contributions to your account. No conditions need to be met.

In order for employees to have a legal right to the money their employer contributes to a retirement plan (e.g., Pension), they must be __________ . HINT: This is measured by the employee’s years of service.

• a high-performing employee

• a minimum age

• vested

• recommended by their immediate supervisors