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?
- A financial advisor
- The employer
- The government agency
- An actuary (correct)
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?
- Investment earnings
- Job satisfaction levels (correct)
- Mortality assumptions
- Current employee ages
Are benefits or contributions fixed in a defined benefit plan?
Are benefits or contributions fixed in a defined benefit plan?
- Benefits (correct)
- Both are fixed
- Neither are fixed
- Contributions
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?
What determines if a defined benefit plan is insured?
What determines if a defined benefit plan is insured?
Which group of employees benefits more from a defined benefit plan?
Which group of employees benefits more from a defined benefit plan?
What is one of the primary risks that annuities can mitigate?
What is one of the primary risks that annuities can mitigate?
Which of the following is a possible disadvantage of annuities?
Which of the following is a possible disadvantage of annuities?
What is a key characteristic of a qualified retirement plan?
What is a key characteristic of a qualified retirement plan?
In a defined benefit plan, who bears the investment risk?
In a defined benefit plan, who bears the investment risk?
Which of the following is a feature of a defined contribution plan?
Which of the following is a feature of a defined contribution plan?
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?
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?
What differentiates a defined benefit plan from a defined contribution plan?
What differentiates a defined benefit plan from a defined contribution plan?
Which of the following statements about non-qualified plans is true?
Which of the following statements about non-qualified plans is true?
What is a primary feature of the 401(k) retirement plan?
What is a primary feature of the 401(k) retirement plan?
Flashcards
Qualified Retirement Plan
Qualified Retirement Plan
A retirement plan where contributions can be deducted as business expenses, and income is not taxed to employees until benefits are received.
Non-Qualified Retirement Plan
Non-Qualified Retirement Plan
A retirement plan where contributions aren't deductible as business expenses unless classified as employee compensation.
Defined Contribution Plan (DC)
Defined Contribution Plan (DC)
A retirement plan where the contribution amount is set, but the retirement benefit amount isn't fixed.
Defined Benefit Plan (DB)
Defined Benefit Plan (DB)
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401(k) Plan
401(k) Plan
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IRA Plan
IRA Plan
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Roth IRA
Roth IRA
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Investment Risk (Retirement)
Investment Risk (Retirement)
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Defined Benefit Plan
Defined Benefit Plan
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Who determines contributions in a defined benefit plan?
Who determines contributions in a defined benefit plan?
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What's fixed in a defined benefit plan?
What's fixed in a defined benefit plan?
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Separate Accounts for Defined Benefit Plans?
Separate Accounts for Defined Benefit Plans?
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Are Defined Benefit Plans Insured?
Are Defined Benefit Plans Insured?
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Who benefits more from a defined benefit plan, older or younger employees?
Who benefits more from a defined benefit plan, older or younger employees?
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Annuities: To Mitigate What?
Annuities: To Mitigate What?
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What are Annuities?
What are Annuities?
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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.
