C21 Retirement Plans PDF

C21 Know the difference between a qualified and non-qualified plan and their advantages/requirements **qualified** - deductible as a business expense and not taxable income to the employee until they are received as benefits. **non-qualified -** Does not allow employer funding contributions to be...

C21 Know the difference between a qualified and non-qualified plan and their advantages/requirements **qualified** - deductible as a business expense and not taxable income to the employee until they are received as benefits. **non-qualified -** Does not allow employer funding contributions to be deducted as business expenses unless classified as compensation to the employee You should remember the basic types of retirement plans, which are popular, and advantageous to you, such as DC, DB plans, 401(k), IRA and Roth IRA; as well as the advantages of each plan type - A **defined contribution (DC) plan** is a qualified pension plan in which the contribution amount is defined but the benefit amount available at retirement varies. - Defined benefit plan - Type of pension plan that assures employees of a certain amount at retirement, leaving all risk to the employer to meet the specified commitment; accumulated funds for all participants are managed in one account. Traditional defined benefit plan. Cash balance plan **Characteristics** **Defined Benefit Plan** **Defined Contribution Plan** -------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- ------------------------------- Who bears the risk of investment? Employer Employee What are the actuarial complexities? Annual pension contributions and plan liabilities for a defined benefit plan must be estimated by an actuary. The estimate of cost depends on factors such as salary levels; normal retirement age; current employee ages; and assumptions about mortality, turnover, investment earnings, administrative expenses, and salary adjustment factors (for inflation and productivity). None What is fixed, contributions or benefits? Benefits Contributions Are there separate accounts? No Yes Is the plan insured? Yes No Is the plan better for older or for younger employees? Older Younger Be familiar with annuities: types, options, advantages/disadvantages, and how annuities can be used to mitigate longevity risk