Retirement Planning Chapter 4 Notes
September 24, 2014
Retirement Planning Notes
Chapter 4: Qualified Pension Plans
Terms to understand:
Plan sponsor- the company who decides what type of plan they want to have and the rules they want to have
Plan document- outlines the rules of the plan, if a rule isn’t in the plan document, they cannot do it!
Custodian- where the assets are actually held in the plan
Benefit of the plan- the goal of the plan
Actuary- someone who’s profession it is to work with these plans and determine the contribution formulas needed and such
ERIS & IRC- the rules
Four types of pension plans
Defined Benefit- activity defined by the company
(Traditional) Defined Benefit Plan- this is what you think of when you think of a defined benefit plan
Cash Balance- basic funding formula, very involved in the investing results, mandatory finds
Defined Contribution- the benefit is not really a factor, the employee has more freedom to determine what they would like to invest with
Money Purchasing
Target Benefit- mandatory funds
DB Pension Plan Characteristics
Mandatory annual funding requirement
Actuarial needs
PBGC insured benefits- unless it is a professional services corporation with 50 or fewer employees
Note: the PBGC pays monthly retirement benefits to approximately 744,000 retirees in 4000 pension plans that no longer exist
Investment risk retained by employer – employer assumes responsibility for the investments to hit a certain point
DC Pension Plan Characteristics
Separate individual accounts
Investment risk borne by the participants
No government insured benefits
Pension Plan Types
Four Types (page 162)
Defined Benefit Pension Plan- DB
Cash Balance Pension Plan- DB
Money Purchasing- DC
Target Benefits- DC
Traditional Pension Plan
DB amount available at the time of the participants retirement (Focus)
Present value of defined benefit can be calculated at any given point during an employee’s service
Commonly based on a combination of
Retirement Planning Notes
Chapter 4: Qualified Pension Plans
Terms to understand:
Plan sponsor- the company who decides what type of plan they want to have and the rules they want to have
Plan document- outlines the rules of the plan, if a rule isn’t in the plan document, they cannot do it!
Custodian- where the assets are actually held in the plan
Benefit of the plan- the goal of the plan
Actuary- someone who’s profession it is to work with these plans and determine the contribution formulas needed and such
ERIS & IRC- the rules
Four types of pension plans
Defined Benefit- activity defined by the company
(Traditional) Defined Benefit Plan- this is what you think of when you think of a defined benefit plan
Cash Balance- basic funding formula, very involved in the investing results, mandatory finds
Defined Contribution- the benefit is not really a factor, the employee has more freedom to determine what they would like to invest with
Money Purchasing
Target Benefit- mandatory funds
DB Pension Plan Characteristics
Mandatory annual funding requirement
Actuarial needs
PBGC insured benefits- unless it is a professional services corporation with 50 or fewer employees
Note: the PBGC pays monthly retirement benefits to approximately 744,000 retirees in 4000 pension plans that no longer exist
Investment risk retained by employer – employer assumes responsibility for the investments to hit a certain point
DC Pension Plan Characteristics
Separate individual accounts
Investment risk borne by the participants
No government insured benefits
Pension Plan Types
Four Types (page 162)
Defined Benefit Pension Plan- DB
Cash Balance Pension Plan- DB
Money Purchasing- DC
Target Benefits- DC
Traditional Pension Plan
DB amount available at the time of the participants retirement (Focus)
Present value of defined benefit can be calculated at any given point during an employee’s service
Commonly based on a combination of