Assignment 1 - Priv. Ret. Plan and SS Dvlpmnt Flashcards
“Reverse Mortgage” Bank pays homeowner a monthly amount for the life of the homeowner for a set number of years
Reverse Annuity
Theory that bus. sponsor retirement plans if it makes economic sense for the ER based on the benefits to the ER, direct or indirect
Business Expedience
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.
Human Depreciation
Theory that a retirement plan represents deferred wages due to the EE’s
Deferred Wage Concept
CREATED
- the base of retirement law, including: rptg; disclos; fiduciary rqurmnts; plan term. ins. (PBGC)
- IRAs.
- Joint responsibility between IRS and DOL
ERISA = Employee Retirement Income Security Act of 1974
- 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.
TEFRA = Tax Equity and Fiscal Responsibility Act. of 1982
- 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
EGTRRA = Ecominic Growth and Tax Relief Reconciliation Act of 2001
- 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
PPA = Pension Protection Act of 2006
EE’s past retirement age who continue to work but can no longer meet the reqrmnts of the job.
superannuated EE
Key item in determining Social Security benefit. based on “averaged indexed monthly earnings” (AIME)
PIA = primary insurance amount
formal name for Social Security
Old-Age, Survivors, and Disability Insurance
used to calculate SS PIA; not the same as the “wage base” for FICA taxes
AIME = Avg. Indexed Monthly Earnings
basic economic factors facing the aged
- 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
reasons for rapid growth of private pension plans
- 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.
principal tax adv. of qualified pension plans
- 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
Decision that ER’s had a legal obligation to bargain over the terms of pension plans facilitated labor’s drive for pension benefits.
Nat’l Labor Relations Board (NLRB)
Inland Steel Company vs. United Steelworkers of America
- 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.
TRA = Tax Reform Act of 1986
- 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
social insurance programs
- 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
EE’s covered under SS program