Chapter 7 Flashcards
Aggregate funding method
Method whereby the necessary contributions for a plan are calculated for the entire group of plan participants
BOLI
Life insurance owned by the bank
Defined Benefit Pension Plan
A plan that provides for a specified monthly benefit in retirement.
Defined Contribution Pension Plan
A plan at which the employee or employer (or both) contribute to the employee’s individual account under the plan.
Employee Stock Ownership Plan (ESOP)
a form of defined contribution plan in which investments are primarily in employer stock
Executive Bonus Plan or Section 162 Bonus Plan
a plan whereby an employee owns a life insurance policy that was purchased, all or in part, by the employer.
Internal Rate of Return (IRR)
the average rate earned by each and every dollar invested during the period.
Multiples
set amount of death benefit expressed in thousands of dollars that are multiplied by the number of plan participants to determine the maximum amount of death benefit available on any one life.
Private Placement Insurance Products
Nonregistered life insurance products only available to a qualified purchaser
Qualified Purchaser
an individual with at least $5 million in investments or a corporation or trust with at least $25 million in assets
Sinking fund
a sperate accumulation of cash or investments in a fund in accordance with the terms of a trust agreement
Stacking
a legal term referring to using the limits of multiple policies to one claim or event.
Spread of Risk
Relates to how much insurance is allowed on any one life relative to the group
Guaranteed Issue
Does not include any traditional individual underwriting
Simplified Issue
Includes some nominal amount of individual underwriting
Non voluntary plans
Plan participation is compulsory
Voluntary plans
not protected from adverse selection because plan participation is not compulsory
Tiered plans
those where amounts of insurance vary by title or salary
Bundled underwriting
Full underwriting but one or more modestly substandard risks can be accepted
Non qualified executive compensation plans (4)
- Deferred compensation plans
- Supplemental executive retirement plans (SERPS)
- section 162 bonus plan
- equity repurchase plans
Deferred Compensation and SERP plans are favorable plan designs for guaranteed issue because:
the insured is not interested in the death benefit but rather the cash value of the policy. (tax advantages)
Pension protection act defined a highly compensated employee as
- a 5% or more shareholder position at any time during the preceding year
- an earned compensation of $95,000 (for 2005, indexed for inflation) in the preceding year.
- One of the five highest paid officers
- Among the highest paid 35% of all employees
