Podcast
Questions and Answers
Who is responsible for estimating annual pension contributions and plan liabilities in a defined benefit plan?
Who is responsible for estimating annual pension contributions and plan liabilities in a defined benefit plan?
Which of the following factors does NOT influence the estimate of pension plan costs?
Which of the following factors does NOT influence the estimate of pension plan costs?
Are benefits or contributions fixed in a defined benefit plan?
Are benefits or contributions fixed in a defined benefit plan?
Is there a separate account for each employee in a defined benefit plan?
Is there a separate account for each employee in a defined benefit plan?
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What determines if a defined benefit plan is insured?
What determines if a defined benefit plan is insured?
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Which group of employees benefits more from a defined benefit plan?
Which group of employees benefits more from a defined benefit plan?
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What is one of the primary risks that annuities can mitigate?
What is one of the primary risks that annuities can mitigate?
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Which of the following is a possible disadvantage of annuities?
Which of the following is a possible disadvantage of annuities?
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What is a key characteristic of a qualified retirement plan?
What is a key characteristic of a qualified retirement plan?
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In a defined benefit plan, who bears the investment risk?
In a defined benefit plan, who bears the investment risk?
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Which of the following is a feature of a defined contribution plan?
Which of the following is a feature of a defined contribution plan?
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Among the following, which plan type is classified as a non-qualified plan?
Among the following, which plan type is classified as a non-qualified plan?
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What is a main advantage of utilizing a traditional IRA for retirement savings?
What is a main advantage of utilizing a traditional IRA for retirement savings?
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What differentiates a defined benefit plan from a defined contribution plan?
What differentiates a defined benefit plan from a defined contribution plan?
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Which of the following statements about non-qualified plans is true?
Which of the following statements about non-qualified plans is true?
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What is a primary feature of the 401(k) retirement plan?
What is a primary feature of the 401(k) retirement plan?
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Study Notes
Qualified vs. Non-Qualified Plans
- Qualified plans are deductible business expenses, not taxable income to employees until received as benefits.
- Non-qualified plans do not allow employer contributions as deductible business expenses unless classified as employee compensation.
Retirement Plan Types
- Popular retirement plans include defined contribution (DC), defined benefit (DB), 401(k), IRA, and Roth IRA.
- Each plan type has advantages and disadvantages.
Defined Contribution Plans (DC)
- A qualified pension plan where the contribution amount is set, but retirement benefits vary.
- Employers define the contribution amount and the employee bears the investment risk.
Defined Benefit Plans (DB)
- A qualified pension plan that guarantees a specific retirement benefit amount.
- Employers take on all investment risk and are responsible for the employee's guaranteed retirement benefit.
Plan Characteristics Comparison
| Feature | Defined Benefit Plan | Defined Contribution Plan |
|---|---|---|
| Investment Risk | Employer | Employee |
| Actuarial Complexity | High | Low |
Additional Details
- Defined benefit plans require complex actuarial calculations to estimate liabilities.
- Defined contribution plan estimates of cost depend on factors like salary levels, normal retirement age, employee ages, and mortality assumptions.
- Employee investment risk and retirement benefit variability are crucial considerations.
Annuities
- Annuities are financial products that can mitigate longevity risk.
- Understanding the types, options, advantages, and disadvantages of annuities is essential.
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Description
This quiz covers the key differences between qualified and non-qualified retirement plans, including defined contribution and defined benefit plans. Test your understanding of the characteristics, advantages, and risks associated with various retirement plan types.
