1.8 Employer-sponsored retirement plans Flashcards
Defined Benefit (DB) “pension plan”
defined FUTURE retirement benefit
formula-based “pension plan”
EMPLOYER ASSUMES ALL INVESTMENT RISK:
need to make sure they save enough to meet future benefit promises
many db plans underfunded
Defined Contribution Plan
only current contribution is promised - NO FUTURE BENEFIT
EMPLOYEE* ASSUMES ALL INVESTMENT RISK
DEFINED BENEFIT PLAN
EMPLOYER ASSUMES INVESTMENT RISK
Types of defined contribution plans
401k-corporate
403(b) - not for profit (also known as a 501(c) 3 Organization
457(b) - government
contributions must be made from paycheck***
Traditional 401k vs Roth 401k
Traditional 401k: before tax contributions (via payroll REDUCTION) **employer matches
Roth 401k: after tax contributions (via payroll DEDUCTION) employer DOES NOT MATCH
2023 CONTRIBUTIONS (INDIVIDUAL - NOT INCLUDING EMPLOYER MATCHES) FOR
-401K,403B, ETC
UNDER AGE OF 50 - $22,500
50+ - $30,00
($7,500 CATCH UP)
Retirement plans: Self-employed / small Business
SEP (simplified employee pension)
A retirement plan that allows the employee to make pre-tax contribution (within certain limit(s), provides for tax deferral of earnings, and is available for employees of public school systems and certain tax-exempt organization
403(b)
Section 457 plans
Section 457B plan is the deferred compensation plan set up under section 457 of the tax code.
 This plan may be used by employees of a state, political subdivision of a state, and any agency or instrumentality of a state.
Employees can defer compensation in a 457 plan in the amount deferred is not reportable for tax purposes .this means the employee receives a deduction each year for the amount deferred..
Important facts to know about 457 plane
These plans are exempt from Ursa non-governmental plans must be unfunded to qualify for tax benefits how government plans must be funded.
These plans are generally not required to follow the nondiscrimination rules of other retirement plans .
A basic difference between a section 457 plan establish on behalf of a governmental entity, and one established by a private tax exempt organization is that:
A governmental plan must hold its assets in a trust or custodial account for the benefit of individual participants
A 457 plan
A type of deferred compensation plan for employees of state and local municipalities
Defined contribution plans
Those that offer no specific end result but instead focus on current tax deductible contributions
Defined benefit plan
 Does a promise, a specific retirement benefit, but do not specify the level of current contributions are defined benefit plans
Contributory plan
 Both employer and employee make contributions to the account
Non-contributory plans
 Only employer makes contributions 
True or false unlike an annuity, payout or life insurance premium contributions to a defined benefit plan or not affected by the participants sex
True
🚨Test, topic, alert🚨employer contributions to a defined benefit were defined contribution pension plans for mandatory although profit-sharing plans and 401(k) plans or technically defined contribution plans. They are not pension plans in the employer contributions are not mandatory in all cases allowable employer contributions are 100% deductible to the Corporation. There is no tax navigation to the employee until withdraw.
Profit-sharing plans
Established by an employer, which allows employees to participate in business profits profit-sharing plans are popular because they offer employers the greatest amount of contribution flexibility the ability to skip contribution during years of low profit, appeals to corporations with unpredictable cash flow they’re relatively easy to install administer and communicate to employees
🚨Test topic, alert🚨one of the benefits of investing through a 401(k) plan is that it takes a vantage of dollar cost averaging a technique described in unit eight which always results in a lower cost per share and a fluctuating market 
