Assignment 3 - RP Design Flashcards
- Income Maintenance (generally DB)
2. Compensation-oriented (generally DC)
(2) ER approaches to retirement design
- -to achieve total compen. objs.
- -integrating benefit plans and direct-pay programs
Retirement benefits based on the avg of pay over the EE’s tenure with the comp.
Career Pay
Retirement benefits based on the avg of pay during the last 3-5 years of employment
Final Avg Pay
Integration of benefit formula w/ SS benef.
Permitted Disparity
- Recruiting an exec. mid-career
- formula in regular plan doesn’t include bonus compens.
- nondiscrim. rules may create limitations on the benef. exec. can receive
(3) reasons for a separate exec. retirement prog.
- nonqualified supplemental plan
- compare benef. paid to rep. EEs under diff. circumstances
- compare actual costs to ER under diff plans.
- measure plans based on uniform actuarial methods and assumptions
- industry standards; geog. standards; presence of union
(3) techniques for comparing retirement plans
- EEs’ SS benef.
- Higher objective benef. for lower-paid EEs than for higher paid EEs
- Full income-replacement objective for only “career” EE’s
- Objectives are set based on EE’s pay level during final years (or last 3-5 years) of employment
(4) factors considered in setting income-replacement objs.
- ER’s legal status
- ER and industry demographics
- EE demographics
- ERs w/ diversified ops. must determine the appropriate degree of uniformity for the retirement prog.
- size of the community where ER is
- presence of collective bargaining units
(6) Environ. factors to consider for retirement plan designs
Emphasis is on protection and continuation of a certain income level when active employment ceases
- DB plan integrated to max with SS benef. or choice of death benef. that provides an income benef. but only to survivors of EE’s immediate family
Income-maintenance Approach
—to providing pension benef.
Emphasis is on deferred compensation and the potential for asset accumulation.
- DC contrib. plan as basic prog. for providing retirement
Compensation-oriented Approach
—to providing pension benef.
Who bears the risk of inflation and investment?
- -EE versus ER
- -DB versus DC plans
DB Plan = ER
DC Plan = EE
Conflicts with coordination retirement benefits w/ SS benef.
- due to the nature of SS benef. and larger value for lower paid EE’s, impossible to achieve an equitable balancing of benef. and costs for EE’s at all pay levels w/o integrating pension and disability income plans in some fashion w/ benef. provided by SS.
- communication and admin. difficulties assoc. w/ integ. plans are such that integration is not desirable
- the need for contrib. flexibility
- ER’s willingness to assume costs assoc. w/ future inflation
- need for a cost-efficient retirement program
- desire to max. benef. adn contrib. w/in limits permitted by fed’l tax law
(4) objs. concerning costs of retirement plans
(6) ways for ERs to achieve max. tax adv. for retirement programs
- choice of benef. formula
- degree to which the plan is integrated w/ SS benefs.
- level of funding needed
- funding instrument chosen
- adoption of both a DB and DC plan
- use of a target benef. plan
sources of benefits for a retired EE
- ER’s retirement plan (primary source)
- SS
- Suppl. retirement income
- ER’s group life ins. and medical expense plan
- *looking at these plans integrated as a whole can affect the choice of specific benefs. and benef. levels
