Module 2 Flashcards
Defind benefit and other pension plans
unit benefit formula
percentage of earnings is paid for each year of employee service, usually 1%–2%
defined benefit plan limit
$275,000 of annual compensation, or 100%of thhee participants compensation averaged over the participant’s highest three consecutive years of earnings.
Defined Benefit Plan Advantages
benefit levels are guaranteed by employer and PBGC Benefits older employees can encourage early retirement
Defined Benefit Plan Disadvantages
Expensive, complex, employer. assumes risk, plan. determines retirement benefit
DBk Plan
accepts 401k rollovers, automatic enrollment, fully. vested, 4% match
Cash Balance Plan
interest rate credit, PBGC, cost saving for employer, employer bears investment risk, minimum funding standard rules, actuaries required,
Defined contribution plans
Target Benefit, ESOP, money Purchase plan
Defined benefit pension plan
Section 4 1 2 e plans, cash balance plans
subject to minimum funding requirements
Defined benefit, money purchase, target benefit plans
determined by multiplying the result of the participant’s years of service divided by the total potential years of service, times the benefit formula.
Accrued benefit
Defined Benefit, Money Purchase, Target Benefit
all have minimum funding standard
the maximum monthly benefit (for those who retire at age 65) guaranteed by the PBGC
$7107.95/ month
Target Benefit Plan
Actuary, percentage of compensation approach, minimum funding standards
employer agrees to make a fixed annual contribution
Money Purchase plan
expensive, ER assumes investment risk, favors older EE’s, NO elective deferrals
Traditional defined benefit plan
