BEST PRACTICES: Developing a Policy for Retirement Plan Design Options Flashcards
State and local governments should have a policy statement that will guide their on-going plan design decisions.
What are the two main types of retirement plans mentioned?
Defined benefit plans and defined contribution plans.
What is the primary purpose of offering retirement benefits to public employees?
To assist in the recruitment and retention of public employees, help employees prepare for retirement, and compensate individuals for their years in public service.
Who bears the investment risk in defined benefit plans?
The employer.
What are the principal features of defined benefit plans?
Guaranteed lifetime annuity, potential cost-of-living adjustments, survivor and disability coverage, and lower investment costs compared to other plan designs.
How are benefits determined in a defined contribution plan?
Based on the assets available in an employee’s individual account, which can vary due to contribution amounts, investment performance, risk levels, and fees paid.
Who bears the investment risk in defined contribution plans?
The participant.
What is a hybrid plan in the context of retirement benefits?
A plan that incorporates features of both defined benefit and defined contribution plans.
What factors should a government consider when developing a retirement plan policy?
Purpose of the plan, the ability of retirees to contribute to economic viability, organization’s philosophy, costs and predictability, labor market considerations, investment risk, portability of benefits, plan comprehensibility, and employee education.
Fill-in-the-blank: Defined benefit plans provide a retirement benefit calculated using a formula based upon a plan participant’s __________ and __________.
Years of service and compensation.
What does GFOA recommend for state and local governments regarding retirement plan policies?
To have a policy statement guiding ongoing plan design decisions to provide sustainable and properly funded retirement plans.
