Pension Plans and Funding Methods Quiz
44 Questions
2 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to Lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

Which of the following best describes a funded pension plan?

  • No funds are earmarked for benefit payments.
  • Benefits are paid only during the life of the retiree.
  • Benefits are expensed when the retiree separates from service.
  • Funds are set aside in advance to pay retirement benefits. (correct)

What characterizes a Pay-As-You-Go funding method?

  • A separate fund is established to cover future liabilities.
  • Payment for retiree benefits comes from current business operations. (correct)
  • All liabilities are recorded on financial statements.
  • Assets are identified but not necessarily liquidated.

Which of the following is NOT a type of unfunded pension plan?

  • Deposit Administration
  • Insurance/Pre Need
  • Contract
  • Trust Fund (correct)

What is the purpose of recognizing liabilities for retirement benefits in financial statements?

<p>To provide transparency about future obligations. (B)</p> Signup and view all the answers

Which statement is true regarding Book Reserve funding?

<p>Liabilities are recorded but no fund is established. (A)</p> Signup and view all the answers

What happens to the excess benefits after allocations and payments have been made?

<p>They revert to the employer and are taxable as deferred income. (A)</p> Signup and view all the answers

What is the Voluntary Termination Benefit based on?

<p>A percentage of the employee's monthly salary at the time of resignation. (D)</p> Signup and view all the answers

Which statement is true about the Portability Benefit in multi-employer plans?

<p>The current employer considers the entire credited service of the employee. (D)</p> Signup and view all the answers

Under the effects of other laws and collective bargaining agreements, what are plan members entitled to?

<p>The highest benefits among those provided by existing laws or the plan. (A)</p> Signup and view all the answers

In contributory plans, what must be returned to employees?

<p>At least all contributions made by the employees. (B)</p> Signup and view all the answers

What type of insurance mentioned offers little flexibility in terms?

<p>Permanent insurance (C)</p> Signup and view all the answers

What is a primary benefit of a trust fund over a deposit administration contract?

<p>Employer involvement in investments (B)</p> Signup and view all the answers

In a defined contribution plan, benefits are influenced by which of the following factors?

<p>Total contributions and investment performance (D)</p> Signup and view all the answers

What happens to funds in a trusteed arrangement if an employee resigns?

<p>Benefits are forfeited to the plan’s funds (C)</p> Signup and view all the answers

Which of the following is a characteristic of a deposit administration contract?

<p>Only benefit payments are deductible (C)</p> Signup and view all the answers

What is one possible risk associated with insured plans?

<p>Risk of loss of premium payments (D)</p> Signup and view all the answers

What governs the insurance incorporated in the permanent cash value insurance?

<p>Insurance Code (C)</p> Signup and view all the answers

What is an investment income aspect unique to permanent (cash value) insurance?

<p>Increase in cash value and possible dividends (A)</p> Signup and view all the answers

What is the primary purpose of gratuity according to the information?

<p>To reward employees for satisfactory service (C)</p> Signup and view all the answers

How does gratuity differ from salary?

<p>Salary is based on actual work rendered or days worked (C)</p> Signup and view all the answers

What would happen if a bank applied a salary structure to determine gratuity?

<p>It would confuse the concepts of gratuity and salary (B)</p> Signup and view all the answers

What is the basic entitlement for an employee retired under a retirement plan?

<p>Termination pay equivalent to at least one-half month salary for every year of service (C)</p> Signup and view all the answers

What is required for employees to consent to an early retirement?

<p>Consent in accordance with a Retirement Plan or CBA (C)</p> Signup and view all the answers

Under what condition could the retirement age be extended?

<p>Employer's discretion with employee agreement (D)</p> Signup and view all the answers

What is considered one whole year of service when calculating retirement benefits?

<p>A fraction of at least six months worked (D)</p> Signup and view all the answers

What would applying gratuity principles contrary to their definition jeopardize?

<p>The essential social justice related to employee compensation (D)</p> Signup and view all the answers

What is an essential purpose of an actuarial valuation in retirement plans?

<p>To estimate how much the company must contribute for future benefits (D)</p> Signup and view all the answers

Which of the following is an advantage of retirement plans for employers?

<p>Improved corporate image and goodwill (C)</p> Signup and view all the answers

What conditions must be met for retirement benefits to be exempt from taxes?

<p>Subject to certain conditions (A)</p> Signup and view all the answers

What percentage of eligible employees must be covered under a reasonable retirement plan?

<p>80% (D)</p> Signup and view all the answers

Which statement accurately describes a separation benefit?

<p>Available to employees leaving under involuntary circumstances (C)</p> Signup and view all the answers

What is a requirement for retirement plans to not discriminate in favor of higher-paid employees?

<p>Must include all employees regardless of salary (D)</p> Signup and view all the answers

What constitutes a 'Philippine National' in the context of retirement funds?

<p>A trustee who is a Philippine citizen managing at least 60% of the fund for locals (C)</p> Signup and view all the answers

What is true about contributions to a retirement fund regarding employer deductions?

<p>Current annual costs can be deducted at 100% (B)</p> Signup and view all the answers

Which of the following is not a category of retirement benefits outlined?

<p>Tax-deferred retirement accounts (D)</p> Signup and view all the answers

Which of the following is correct about a reasonable retirement plan?

<p>It should be a permanent and definite program (A)</p> Signup and view all the answers

What constitutes 'one-half month salary' for retirement pay calculations?

<p>15 days salary, 5 days of service incentive leave, 1/12 of thirteenth-month pay (B)</p> Signup and view all the answers

Which of the following is NOT included in the computation of retirement pay?

<p>Profit share (C), Cola (D)</p> Signup and view all the answers

Under a collective bargaining agreement (CBA), what must the employer's total contribution to a retirement fund be?

<p>Equal to the total retirement benefits (A)</p> Signup and view all the answers

Which employees are exempt from the coverage of retirement benefits in the private sector?

<p>All of the above (D)</p> Signup and view all the answers

What may a reasonable benefit plan consist of according to the Labor Code?

<p>Pension, gratuity, stock bonus, or profit-sharing plan (A)</p> Signup and view all the answers

How is the thirteenth-month pay calculated in the context of retirement pay?

<p>It is 1/12 of the annual salary (D)</p> Signup and view all the answers

What type of retirement benefit plan can be treated as a substitute under the PAG-IBIG Fund?

<p>Retirement benefits that do not conflict with existing CBAs (C)</p> Signup and view all the answers

Which of the following is a characteristic of a contributory benefit plan as mentioned in the Labor Code?

<p>Contributions are made by employees and/or officials (C)</p> Signup and view all the answers

Flashcards

Gratuity

A reward given to an employee for satisfactory service, not based on work performed.

Salary

Payment for work performed, based on hours or days worked.

Retirement benefit

Payments given to employees upon retirement (either mandated by law or contract).

Retirement plan

A formal agreement or policy outlining retirement benefits.

Signup and view all the flashcards

CBA

Collective Bargaining Agreement.

Signup and view all the flashcards

Early Retirement

Retirement option before the usual retirement age, provided by a collective bargaining agreement or retirement plan.

Signup and view all the flashcards

Extended Retirement

Retirement option past the usual retirement age, provided by a collective bargaining agreement or retirement plan. The employer has some discretion.

Signup and view all the flashcards

Termination Pay

A payment equivalent to a fraction of a month's salary for each year of service, given upon termination.

Signup and view all the flashcards

Funded Pension

Retirement benefits are financed by setting aside funds for payment in advance of the retirement date.

Signup and view all the flashcards

Pay-As-You-Go Pension

Retirement benefits are paid directly from current business operations, with no pre-set fund.

Signup and view all the flashcards

Book Reserve Pension

Retirement liabilities are recorded in the company's books, but no separate fund exists. Assets are identified, and the liability is recognized.

Signup and view all the flashcards

Unfunded Pension

Retirement benefits are not financed by setting aside funds, but through other methods like insurance or trust funds.

Signup and view all the flashcards

What is the statutory requirement for retirement benefits?

There is a legal obligation to pay retirement benefits to employees, regardless of how the funds are sourced.

Signup and view all the flashcards

One-half month salary

Used to calculate retirement pay, and includes 15 days of salary at the latest rate, the cash equivalent of 5 days of service leave, and 1/12th of 13th-month pay.

Signup and view all the flashcards

Retirement pay calculation (method)

A formula to compute retirement pay. It includes 15 days of salary, 5 days service leave cash equivalent, and 1/12th of 13th-month pay.

Signup and view all the flashcards

CBA Retirement Benefits

Retirement benefits outlined in a Collective Bargaining Agreement (CBA) where the employer's contribution must be equal to or greater than what the employee would have received if no such agreement existed.

Signup and view all the flashcards

PAG-IBIG Fund as a retirement substitute

An employer can treat PAG-IBIG coverage as retirement benefits, if it doesn't conflict with existing CBA's.

Signup and view all the flashcards

Exemptions from retirement coverage

Government employees, domestic helpers, and employees in small retail, service, or agricultural businesses (10 or fewer employees) are exempt.

Signup and view all the flashcards

Retirement Benefit Plan (Labor Code)

A plan for retirement maintained by an employer potentially for some or all employees. It can include components like pension, gratuity, stock bonus, or profit-sharing.

Signup and view all the flashcards

COLA and profit share exclusion

COLA (Cost of Living Adjustment) and profit share are not included in calculating retirement pay.

Signup and view all the flashcards

Retirement Plan Types (Examples)

Retirement plans can be contributory, meaning both employees and employers contribute, or non-contributory, meaning only the employer contributes.

Signup and view all the flashcards

Pre-need Insurance

A type of life insurance where premiums are paid in advance to cover funeral expenses. It provides financial security for loved ones and avoids potential financial burdens at the time of death.

Signup and view all the flashcards

Permanent Life Insurance

A type of life insurance that accumulates cash value over time, providing both death benefits and a savings component.

Signup and view all the flashcards

Investment Income in Permanent Insurance

The growth of cash value in permanent life insurance, often influenced by dividends.

Signup and view all the flashcards

Tax Implications of Permanent Insurance

Permanent life insurance premiums may be tax-deductible, but cash value growth and dividends are generally taxable upon withdrawal.

Signup and view all the flashcards

Trustee vs. Insured in Retirement Plans

Trustee manages the plan assets and ensures benefits are paid to employees, while the insured is the employee receiving the benefits.

Signup and view all the flashcards

Deposit Administration Contract

A retirement plan where the insurance company manages the investments and pays benefits based on the plan's rules.

Signup and view all the flashcards

Trust Fund in Retirement Plans

A retirement plan where a trustee holds and invests the plan assets, providing flexibility in investment choices and tax advantages.

Signup and view all the flashcards

Defined Benefit vs. Defined Contribution Plan

Defined benefit plan guarantees a specific benefit at retirement, while defined contribution plan relies on contributions and investment performance to determine benefits.

Signup and view all the flashcards

Voluntary Termination Benefit

A benefit offered to employees who voluntarily resign, typically a percentage of their salary, calculated based on their tenure.

Signup and view all the flashcards

Portability Benefit

A benefit that allows employees to transfer their accrued retirement savings to a new company if they move to a related company that participates in the same retirement plan.

Signup and view all the flashcards

Plan Reversion

Any excess funds remaining in a retirement plan after all benefits are distributed are returned to the employer and are considered taxable income for the employee.

Signup and view all the flashcards

Effect of other Laws

Retirement benefits under a company plan are not deducted from benefits received from the SSS (Social Security System) or other government programs.

Signup and view all the flashcards

Highest Benefit Rule

Employees are entitled to the highest benefit among those offered by the company plan, existing laws, or collective bargaining agreements (CBA).

Signup and view all the flashcards

Actuarial Valuation

A mathematical process to determine how much a company needs to contribute regularly to cover future retirement benefits.

Signup and view all the flashcards

Retirement Plan Advantages (Employer)

Benefits for the company, such as attracting better employees, tax deductions, and improved company image.

Signup and view all the flashcards

Retirement Plan Advantages (Employee)

Benefits for the employee, such as tax-free retirement income and protection of their standard of living.

Signup and view all the flashcards

Retirement Fund - Qualified Buyer

A retirement fund can buy securities without needing to register them because it's managed by authorized entities.

Signup and view all the flashcards

Retirement Fund - Philippine National

At least 60% of the fund must benefit Philippine nationals when a trustee manages it.

Signup and view all the flashcards

Taxation of Retirement Benefits

Retirement benefits are usually tax-free, but this can have exceptions.

Signup and view all the flashcards

Reasonably Retirement Plan

A good plan must have specific features to ensure fairness for both employers and employees.

Signup and view all the flashcards

Retirement Plan Requisites

Specific requirements for a plan to be recognized, covering aspects like coverage scope, contributions, and non-discrimination.

Signup and view all the flashcards

Plan Provisions Outline

A plan outlines basic features like the effective date, eligibility criteria, and benefits, including retirement, death, disability, and separation.

Signup and view all the flashcards

Plan Provisions - Effective Date

The date a plan becomes active, determining who is eligible for membership.

Signup and view all the flashcards

Study Notes

Employee Benefit Plans

  • Employee Benefit Plans (EBPs) are plans providing benefits, primarily for retirement.
  • The plans are designed for employees who will retire or separate from their employer.
  • Retirement plans are established to provide benefits for employees in a common enterprise.
  • The plan provisions have a fund that's composed of employer and/or employee contributions.
  • Retirement or other benefits are provided using the fund in a plan.

Retirement Benefit

  • Retirement benefits are granted if there isn't a collective bargaining agreement or other agreement concerning employment terms and conditions.
  • Retirement is granted upon reaching the age of sixty (60).
  • A plan provides for a fund from contributions from both the employer and employees.
  • This fund is used for retirement and other employee benefits.

Retirement Age

  • Compulsory Retirement: 65 years of service with 5 years of employment.
  • Optional Retirement: 60-64 years of service with 5 years of employment
  • Early Retirement: Is possible with employee consent in the retirement plan or with a CBA.
  • Extended Retirement: Depends on the employer's discretion and agreement with employee.

Retirement Benefit Computation

  • Retirement pay is equivalent to one-half month's salary per year of service.
  • Retirement pay includes 15 days' salary, equivalent to 5 days of service incentive leave, and 1/12th of the thirteenth-month pay.
  • COLA and profit-sharing aren't included in retirement pay calculations.

Alternatives Under CBA

  • An employer may consider PAG-IBIG FUND as a substitute to a CBA's retirement plan; this alternative shall not contravene an existing CBA.
  • All contributions from the employer, and its increments, are considered for compliance with the Labor Code.

Coverage of Retirement Benefits

  • All private sector employees are covered by the plan, no matter their position or designation.
  • Exemptions include government employees, domestic helpers, personal service employees in retail, service, or agricultural establishments that have no more than ten (10) employees.

Some Distinctions Among Types of Retirement Plans

  • The differences between retirement plans are noted.

Requirements of a Plan

  • A definite written program
  • The program must be continuous and permanent
  • At least 70% of eligible employees must be covered, or 80%.
  • Plan coverage is done by classification. Classifications should not discriminate against officers, shareholders, supervisors, or highly compensated employees.

To the Employee/ Employer

  • Employee contribution is for the Retirement Fund.
  • Employee benefits are non-discriminatory and non-forfeit.
  • Employer contributions are used for employer reduction.
  • Plan funding must be administered by a trust.

Basic Provisions

  • Effective Date: The first of a month, coincident with or following the attainment of age 60.
  • Eligibility for Membership: Automatic membership commences upon effective date of the plan. Regular and full-time employees are eligible.
  • Normal Retirement Date: The first day of the month after the employee turns 60.
  • Death and Disability Benefits: Defined benefits in case of death or disability.
  • Separation Benefit: Benefits granted for reasons other than dismissal.
  • Dismissal for Cause: Employees are not entitled to benefits for dismissal for cause.
  • Non-Diversion: No part of the Fund shall be diverted to other purposes.
  • Contributions: Non-contributory; actuarially determined.
  • Administration: Administered by Retirement Committee, managed through a trust fund.
  • Right of Employer to Modify, Suspend or Discontinue Plan.
  • Termination of Plan: When the employer ceases contributions, the fund is divided.
  • Order of Payment of Benefits: Employee benefits are paid according to a set order.

Optional Features

  • Voluntary Termination Benefit: Employees who resign voluntarily may receive a benefit equivalent to a percentage of their salary for a specific number of months. Vesting percentage depends on the company's policies, nature of business, etc..
  • Portability Benefit: Employees transferring companies may retain their retirement benefits. The amount will transfer from the prior company's retirement fund and be credited to the new employer.

Effect of Other Laws

  • Plan benefits from SSS or State Insurance Funds do not deduct from the company's contributions.
  • If benefits are analogous to those in the Plan, the highest benefit amount among the various sources is granted.

Taxation

  • Retirement benefits are generally tax-exempt (subject to certain conditions).
  • Pension benefits are tax deductible only after being paid.
  • These benefits are exempt from attachment, garnishment, levy, or seizure.

Actuarial Valuation

  • A method to determine the amount of contributions a company needs for future retirement benefits.
  • Funding, accounting, and tax deductions are part of the purpose.

Advantages for Employee/Employer

  • Employee: Tax-free benefits (retirement), protection during separation (involuntary), job security, and productivity.
  • Employer: Compliance with regulations, incentive in hiring, productivity, corporate image, and tax deductions.

Special Characteristics (Specific to Retirement Funds)

  • Retirement fund as a qualified buyer
  • Retirement Fund as a Philippine National

Definitions

  • Gratuity Plan: A plan that provides a lump-sum benefit when an employee retires.
  • Pension Plan: A plan that establishes a payment over years, often a lifetime benefit for the retiree.
  • Profit-Sharing Plan: A plan that allows employees to participate in the company's profits.
  • Stock Bonus Plan: A plan offering benefits similar to profits, but distributable as stock.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Quiz Team

Related Documents

TIFP Employee Benefit Plans 2024 PDF

Description

Test your knowledge on funded and unfunded pension plans with this quiz. Explore questions about Pay-As-You-Go funding, retirement benefit liabilities, and Book Reserve funding. Understand the key characteristics and purposes behind various pension funding methods.

More Like This

Use Quizgecko on...
Browser
Open
Browser
Browser