ch 13

Question 1

two generic pension plans are

Answer 1

• defined benefit plans (DB)
• defined contributions plans (DC)

Question 2

to what plan have many companies shifted toward?

Answer 2

401(k) plans – dollar contribution is known and controllable

Question 3

defined benefit plans

Answer 3

• guarantees a specified level of retirement income
• employer sets up a pension fun to invest contributions
  
  • must meet funding requirement of Employee Retirement Income Security Act (ERISA) of 1974
• employer MUST contribute enough for the plan to cover all benefits to be paid out to retirees

Question 4

defined contribution plans

Answer 4

• employer sets up an investment account for each participating employee AND specifies the size of the investment into that account
• when employee retires, pension is based on:
  - their contributions
  - employer contributions
  - any gains (or losses) in stock investments

Question 5

comparing DB and DC

Answer 5

Defined benefit (DB) plans:
- Employer promises the employee a monthly benefit after retirement.
- Focused on income, usually for life.
- Employer is responsible for funding and bears the funding risk

Defined contribution (DC) plans:
- It is the contribution, not the ultimate benefit, that is funded.
- It is focused on saving/accumulation.
- Individual typically has choice over how to invest, how much to save, etc., but also bears the investment risk

Question 6

employee retirement income security act (ERISA)

Answer 6

does not require that employers offer a pension plan. But if a company decides to have one, it has to comply with ERISA provisions
- general requirements
- vesting and portability
- pension benefit guaranty corporation (PBGC)
- pension protection act of 2006 (PPA)

Question 7

ERISA – general requirements

Answer 7

• employees are eligible for pension plans from age 21
• employers may require 1-3 years of service

Question 8

ERISA – vesting and portability

Answer 8

vesting – REQUIREMENT for employee AND employer contributions

portability – does not require mandatory portability of private pensions

Question 9

ERISA – pension benefit guaranty corporation (PBGC)

Answer 9

• established by ERISA
• employers MUST buy insurance from PBGC who guarantee payment of vested benefits

Question 10

ERISA – pension protection act of 2006 (PPA)

Answer 10

• allows employees in publicly traded companies to sell off any employer stock purchased through deferrals or after-tax contributions
• identifies ‘at risk’ plans that are less than 70% funded

Question 11

life insurance

Answer 11

Three-fourths of employees have paid life insurance.
- Typically one to two times annual salary.
- Most premiums are paid by the employer.
- Nearly all are forfeitable upon quitting.
- Some offer a basic life coverage with optional additional coverage available

Question 12

medical and medically related payments

Answer 12

General Health Care

Short- and Long-Term Disability
- Salary continuation plans and Long-term disability plans.
- Short-term illness is covered by paid time off (PTO)
- Short-term disability (STD) pays a percentage of an employee’s salary for temporary disability.
- Long-term disability (LTD) plans, take over when short-term plans expire: Usually underwritten by insurance, provides 60 to 70 percent of pay for two years, up to life.

Dental Insurance & Vision Care

Flexible Spending Account (FSA)

Question 13

payments for time not worked

Answer 13

paid time off during work hours for rest periods, lunch, etc

also includes:
- vacation and holidays
- paid sick leave
- other payments such as jury duty

maternity leave

Question 14

miscellaneous benefits

Answer 14

• continuous education
• child care
• elder care
• domestic partner benefits
• legal insurance