Module 2 Key Terms Flashcards
Defined Benefit Pension Plan
Employer-sponsored qualified retirement plan that guarantees a specified benefit level (monthly pension amount) at the employee-participant’s date of retirement.
Section 415
Tax Code, there is a limit on the projected annual benefit that a defined benefit plan can provide to the employee-participant at age 65.
265,000 annual comp or 100% comp over earnings
Pension Plan Act of 2006
A special reduced premium is effective for employers with 25 or fewer employees.
Flat Amount Formula
A specified dollar amount is promised to the employee per month for life, beginning at age 65. Doesnt differentiate between employees with different compensation or use accrued benefit actuarial cost method.
Flat Percentage Formula
Provides a retirement benefit that is a percentage of the employee’s average earnings and will usually require a certain amount of minimum years of service before the full percentage benefit is payable.
Unit Benefit Formula
A percentage of earnings is paid for each year of employee service, usually 1%–2%.
Career Average Method
Final Average Method
Average earnings over the final three to five years of service will generate a larger benefit for the employee
DB(k) Plan
Allows a traditional defined benefit pension plan to accept Section 401(k) type pretax employee contributions
Cash Balance Pension Plan
Type of defined benefit pension plan that includes features of a defined contribution plan. Provides for annual employer contributions at a specified rate to a hypothetical individual amount
Interest Rate Credit
( Guaranteed Return)
Section 412(e)(3) Plan
Traditional defined benefit pension plan funded exclusively by cash value life insurance or annuity contracts
Money Purchase Pension Plan
Defined contribution pension plan in which an employer makes annual mandatory contributions to each employee’s individual account and the employee bears the investment risk
Target Benefit Pension Plan
Qualified defined contribution pension plan in which employer contributions are made for each participant in an actuarially determined amount to reach a targeted benefit at the specified normal retirement age
Tandem Plan
A greater tax deduction at the cost of two plan administration expenses and partial mandatory employer contribution
