Principles of Risk Management and Insurance, 13th Edition

Application Questions

1. Qualified retirement plans must meet certain requirements to receive favorable federal income-tax treatment. Briefly explain each of the following:

   1. Minimum age and service requirements

   2. Vesting provisions

   3. Limitations on contributions and benefits

   4. Early distribution tax penalty

2. A national labor union representing pipeline construction workers has a defined-benefit pension plan for its members. Ron, age 65, is a heavy equipment operator who wants to retire. He has been a member of the union for 30 years. The pension plan has a unit-benefit formula, which provides a retirement benefit equal to 1.5 percent of the worker’s final average compensation for each year of credited service. Final average compensation is based on the ...