Assignment 1 - Priv. Ret. Plan and SS Dvlpmnt

Question 1

“Reverse Mortgage” Bank pays homeowner a monthly amount for the life of the homeowner for a set number of years

Answer 1

Reverse Annuity

Question 2

Theory that bus. sponsor retirement plans if it makes economic sense for the ER based on the benefits to the ER, direct or indirect

Answer 2

Business Expedience

Question 3

Theory that ER’s sponsor retirement plans because EE’s, just like machines, a worker wears out over time, and ER’s should plan for this.

Answer 3

Human Depreciation

Question 4

Theory that a retirement plan represents deferred wages due to the EE’s

Answer 4

Deferred Wage Concept

Question 5

CREATED

• the base of retirement law, including: rptg; disclos; fiduciary rqurmnts; plan term. ins. (PBGC)
• IRAs.
• Joint responsibility between IRS and DOL

Answer 5

ERISA = Employee Retirement Income Security Act of 1974

Question 6

• major changes: created “top-heavy” concept
• lowered contrib/benefit limits
• created parity b/w corp. plans and self-empl’d plans
• est. withholding on pension benefits.

Answer 6

TEFRA = Tax Equity and Fiscal Responsibility Act. of 1982

Question 7

• incr’d contrib/benefit limits for all savings vehicles
• tax credits to lower/middle income EE’s making contribs to retirement plans
• provided business credits for start-up of retirement plans
• catch-up contrib. (over age 50)
• ROTH
• greater portability b/w plans (ROLLOVERS)
• great parity b/w 401K, 403B, and 457 plans

Answer 7

EGTRRA = Ecominic Growth and Tax Relief Reconciliation Act of 2001

Question 8

• made perm. EGTRRA incr. in contrib/benefts
• auto-enrollment safe-harbor feature
• Qualified Default Investment Account (QDIA)
• allowed financial service providers to give financial advice
• diversif. reqrmnts
• made ER contribs. subject to faster vesting schedules

Answer 8

PPA = Pension Protection Act of 2006

Question 9

EE’s past retirement age who continue to work but can no longer meet the reqrmnts of the job.

Answer 9

superannuated EE

Question 10

Key item in determining Social Security benefit. based on “averaged indexed monthly earnings” (AIME)

Answer 10

PIA = primary insurance amount

Question 11

formal name for Social Security

Answer 11

Old-Age, Survivors, and Disability Insurance

Question 12

used to calculate SS PIA; not the same as the “wage base” for FICA taxes

Answer 12

AIME = Avg. Indexed Monthly Earnings

Question 13

basic economic factors facing the aged

Answer 13

• desired of the aged to maintain their preretirement standard of living in their retrmnt years
• declining employment opportunities
• lower indiv. savings of the aged b/c of higher income taxes, incr’d consumption, inflation, etc..
• improvement in longevity

Question 14

reasons for rapid growth of private pension plans

Answer 14

• incr’d productivity and morale of EE’s
• tax advantages
• wage stabilization programs
• pressures from unions to expand fringe benef.
• attract and retain workers
• ER’s reward EE’s for long periods of service
• efficiency of the formal group savings approach to provide econ. security for the aged.
• sales efforts for funding agencies such as insurance comps, bank trusts, corp. trustees, and MF’s.

Question 15

principal tax adv. of qualified pension plans

Answer 15

• ER contibs. (w/in prescribed limits) can be deducted as a bus. exp.
• Inv. income earned on pension assets is tax deferred.
• no current income taxation to the EE on ER contribs. to plan
• distrib. from pension plans may be taxed on a favorable basis

Question 16

Decision that ER’s had a legal obligation to bargain over the terms of pension plans facilitated labor’s drive for pension benefits.

Answer 16

Nat’l Labor Relations Board (NLRB)

Inland Steel Company vs. United Steelworkers of America

Question 17

• imposed new cov. tests and accelerated vesting requmnts for qualif’d plans
• chg’d rules under which qualif’d plans could be integrated w/ SS
• lowered limits for retmnt benef. that begin b4 age 65
• chg’d timing and taxation of plan distribs.
• term’d IRA ded. for many qualif’d plan partic.
• chg’s to ESOPs and exec. comp.

Answer 17

TRA = Tax Reform Act of 1986

Question 18

• compulsory
• designed to provide only a floor of income w/ respect to the risks cov’d
• pay benef. based largely on social adequacy raqther than on indiv. equity - loosely related to worker’s earnings
  prescribed by law and paid as a matter of right w/o demonstration of need (same level b/w high and lower income people)
• financially self-supporting

Answer 18

social insurance programs

Question 19

• EE’s in private firm
• Fed’l civilian EE’s
• State/Local gov’t EE’s
• EE’s of nonprofits
• self-employed indiv.
• domestic EE’s in private homes

Answer 19

EE’s covered under SS program