Exam 4- Chapter 18 Flashcards
1
Q
- Accumulate assets over working life
- Provide income in retirement
- Paid if ‘vested’, after ‘retirement
A
What is a pension fund?
2
Q
Employer guarantees income in retirement (for life)
Benefit is formulaic:
- Flat benefit
- Career average
- Final pay
A
Defined benefit
3
Q
Flat Benefit
A
Flat amount times years of service
4
Q
Final Pay
A
Average salary (last x years) times fraction times years of service
5
Q
Career Average
A
Average salary (last x years) times fraction times years of service
6
Q
- Plan sponsor outsources the assets to an insurance company
- Insurer guarantees annual returns
A
Insured
7
Q
- Plan sponsor manages the assets themselves
- Note: The sponsor cannot remove assets from the plan
A
Uninsured
8
Q
defined benefit:
sufficient assets to over PV of liabilities is ____, less than that is ____
A
funded; underfunded
9
Q
- Sponsored by governments
- City/State/Federal/Military
- Social Security
A
Public
10
Q
- Corporations
- Non-profit organizations
A
Private
11
Q
- Individuals contribute to the plan
- The benefit is based solely on asset accumulation
- Generally tax-deferred (Roth accounts are taxed upfront, not at the end)
A
Defined contribution
12
Q
Types of defined contribution plans: (3)
A
- 401(k) / 403 (b) / 457
- Individual Retirement Account (IRA)
- Keogh Plan
13
Q
- 401(k) / 403 (b) / 457
- Employee contributes fraction of salary (Limited to $20,500)
- Employer may match contributions (Up to $20,500)
A
Employer sponsored
14
Q
Individual
A
- Individual Retirement Account (IRA)
- Current limit is $6,500 per year
- Traditional vs. Roth (Taxes later vs. taxes now)
- Favorable tax treatment phases out as your income increases
15
Q
Self-employment sponsored
A
- Keogh plans
- High contribution limits:
25%(100%) of income or $61,000
