Podcast
Questions and Answers
What factors do actuaries consider when estimating annual pension contributions for a defined benefit plan?
What factors do actuaries consider when estimating annual pension contributions for a defined benefit plan?
- Investment return rate and tax liabilities
- Salary levels and mortality assumptions (correct)
- Employee productivity and company revenue
- Market trends and industry standards
Do defined benefit plans operate with separate accounts for each employee?
Do defined benefit plans operate with separate accounts for each employee?
- No, there are no separate accounts (correct)
- Yes, individual accounts are mandatory
- Yes, but only for high-income employees
- No, but employees can choose their investments
In a defined benefit pension plan, who typically bears the longevity risk?
In a defined benefit pension plan, who typically bears the longevity risk?
- The employees who retire
- The employer who contributes (correct)
- The actuary who estimates liabilities
- The insurance company insuring the plan
Which group of employees does a defined benefit pension plan generally benefit the most?
Which group of employees does a defined benefit pension plan generally benefit the most?
Is a defined benefit pension plan generally insured?
Is a defined benefit pension plan generally insured?
Which of the following assumptions does not influence an actuary's estimate for pension contributions?
Which of the following assumptions does not influence an actuary's estimate for pension contributions?
What are the primary advantages of using annuities in retirement planning?
What are the primary advantages of using annuities in retirement planning?
Which of the following is a disadvantage of annuities?
Which of the following is a disadvantage of annuities?
What is a primary characteristic of a qualified retirement plan?
What is a primary characteristic of a qualified retirement plan?
In a defined benefit (DB) plan, who bears the risk of investment?
In a defined benefit (DB) plan, who bears the risk of investment?
Which of the following is a feature of a defined contribution (DC) plan?
Which of the following is a feature of a defined contribution (DC) plan?
What distinguishes non-qualified plans from qualified plans?
What distinguishes non-qualified plans from qualified plans?
Which of the following statements is true regarding traditional IRAs?
Which of the following statements is true regarding traditional IRAs?
What is an advantage of a 401(k) plan compared to an IRA?
What is an advantage of a 401(k) plan compared to an IRA?
Which plan type guarantees a specified benefit amount at retirement?
Which plan type guarantees a specified benefit amount at retirement?
What is a cash balance plan categorized as?
What is a cash balance plan categorized as?
Flashcards
Qualified Retirement Plan
Qualified Retirement Plan
A retirement plan where contributions are deductible as a business expense and not taxable to the employee until they receive benefits.
Non-Qualified Retirement Plan
Non-Qualified Retirement Plan
A retirement plan where employer contributions aren't deductible as business expenses unless as employee compensation.
Defined Contribution (DC) Plan
Defined Contribution (DC) Plan
A qualified retirement plan where the contribution amount is fixed, but the retirement benefit varies based on investment performance.
Defined Benefit (DB) Plan
Defined Benefit (DB) Plan
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401(k) Plan
401(k) Plan
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IRA
IRA
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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 Contributions
Defined Benefit Plan Contributions
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Defined Benefit Plan Benefits
Defined Benefit Plan Benefits
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Defined Benefit Plan Accounts
Defined Benefit Plan Accounts
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Defined Benefit Plan Insurance
Defined Benefit Plan Insurance
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Defined Benefit Plan for Older Employees
Defined Benefit Plan for Older Employees
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Annuities: Types
Annuities: Types
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Annuities: Longevity Risk Mitigations
Annuities: Longevity Risk Mitigations
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Longevity Risk
Longevity Risk
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Study Notes
Qualified vs. Non-Qualified Plans
- Qualified plans are deductible as business expenses and not taxable income to the employee until received as benefits.
- Non-qualified plans do not allow employer funding contributions to be deducted as business expenses unless classified as compensation to the employee.
Retirement Plan Types
- Defined Contribution (DC) plans: Contribution amount is defined, but the benefit amount at retirement varies.
- Defined Benefit (DB) plans: Assure a certain amount at retirement, with the employer bearing the risk of meeting the commitment. Accumulated funds are managed in one account (e.g., Traditional Defined Benefit, Cash Balance).
Plan Characteristics Comparison
| Feature | Defined Benefit Plan | Defined Contribution Plan |
|---|---|---|
| Investment Risk | Employer | Employee |
| Actuarial Complexity | Annual pension contributions and plan liabilities must be estimated by an actuary; factors impacting the estimate include salary levels, retirement age, current employee ages, mortality, turnover, investment earnings, administrative expenses, and salary adjustments for inflation. | None |
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Description
This quiz explores the differences between qualified and non-qualified retirement plans, including the implications for tax and employer funding. Additionally, you will learn about defined contribution and defined benefit plans and their unique characteristics. Test your knowledge on retirement planning and the responsibilities associated with these plans.
