Retirement Planning Flashcards
What is a Defined Contribution Plan?
A retirement plan where the employer, employee, or both make contributions on a regular basis, and the final benefits depend on the contributions made and investment performance.
This plan does not guarantee a specific final benefit amount.
What is a Section 401(k) Plan?
A type of defined contribution plan that allows employees to save for retirement with tax advantages.
Employees can contribute through payroll deductions.
What does ESOP stand for?
Employee Stock Ownership Plan
A plan that provides a company’s workforce with an ownership interest in the company.
What type of plan is a Money Purchase Pension Plan?
A defined contribution plan where the employer is required to make annual contributions.
Contributions are usually a fixed percentage of employee compensation.
What is the maximum compensation considered in the benefit formula for 2024?
$345,000
This limit is used in calculating contributions and benefits in retirement plans.
Who bears the investment risk in a Defined Contribution Plan?
The participant
Participants are responsible for their investment choices and the outcomes.
What is the vesting requirement for contributions in a Defined Contribution Plan?
Must be at least as generous as 3-year cliff, or 2-6 year graded.
This determines when employees gain full rights to employer contributions.
What is the maximum deductible employer contribution as a percentage of covered payroll?
25%
This limit applies to contributions made by employers to retirement plans.
True or False: There is a guaranteed final benefit amount in Defined Contribution Plans.
False
Benefits depend on contributions and investment performance, not guaranteed.
Fill in the blank: Combined EE/ER contributions are subject to an annual additions limit of _______.
$69,000
This limit applies to total contributions made to a participant’s account in a defined contribution plan.
What are the Profit Sharing Plans?
Traditional profit sharing
401k
Stock bonus plan
ESOP
What are the different DC pension plans?
Money Purchase pension plan
Target benefit pension plan
What are the types of Defined Benefit Plans?
Traditional Defined Benefit Pension
Cash balance pension
