Midterm

Question 1

What costs are eliminated during retirement?

Answer 1

Parking, payroll tax, premiums on disability, mortgage, no longer need to save, work related expenses should be reduced or eliminated.

Question 2

What are some expenses which may increase during retirement?

Answer 2

Healthcare and traveling.

Question 3

What are the three calculation methods for retirement needs?

Answer 3

Annuity method-0 at death fixed amount. Capital preservation- maintains original capital balance needed at retirement for entire life expectancy. Purchasing power preservation model- maintains purchasing power of the original capital balance at retirement for entire life expectancy.

Question 4

What are some factors you may consider for retirement planning?

Answer 4

Remaining work life expectancy, retirement life expectancy, savings, annual income needs, wage replacement ratio, inflation, retirement income sources, investment returns, qualitative factors.

Question 5

What is sensitivity analysis?

Answer 5

Change variables assumptions to see how it would effect the retirement plan.

Question 6

What are the four basic ideas about retirement planning that I must know from Chapter 2

Answer 6

Will SS provide most people with an equal wage replacement ratio? Are small businesses encouraged or discouraged from implementing retirement plans? Yes, through special tax incentives. does the government encourage retirement plans? Which plans are employers more likely to establish? profit sharing vs pension plan.

Question 7

Who is a Key EE?

Answer 7

Greater than 5 percent owner or greater than 1 percent owner and compensation exceeding 150,000. Or officer and comp exceeding 170,000

Question 8

Who is a highly compensated employee?

Answer 8

Greater than 5 percent owner or compensation greater than 120,000. Top 20 percent election?

Question 9

What does accrues benefit mean?

Answer 9

It depends on whether or not we’re talking about defined benefit or defined contribution plans. Defined benefit=present value of the vested expected future payments at retirement. Defined contribution accrued benefits vested account balance of the qualified plan.

Question 10

What is the vesting schedule for defined benefit plans?

Answer 10

307 year graduated or 5 year cliff

Question 11

What is the vesting schedule for Top heavy plans?

Answer 11

2-6 year graduated or 3 year cliff.

Question 12

If ADP for NHC EE is 0 to 2 percent, then

Answer 12

ADP for HC= 2x ADP for NHC

Question 13

If ADP for NHC EE is between 2-8 percent, then

Answer 13

ADP for HC EE is 2+ ADP for NHC

Question 14

If ADP for NHC is 8 percent or over, then

Answer 14

ADP for HC EE is 1.25 times NHC.

Question 15

What are the two type of pension plans?

Answer 15

Pension plans and profit sharing plans

Question 16

What are the main differences between pension plans and profit sharing plans?

Answer 16

Profit sharing defers compensation vs pension plan pay a pension at retirement. In service withdrawals are allowed from profit sharing plans after two years. Mandatory funding for pension plans. Only 10 percent vs 100 percent maximum in profit sharing plan.

Question 17

What are the differences between defined benefit and defined contribution plans?

Answer 17

DB annual contribution no less than unfunded current liability. DC 25 percent of covered compensation. DB risk by employer vs risk by employee with defined contribution. PBGC for defined benefit. Separate accounts for DC. Prior credit possibility for DB.

Question 18

What benefits will you receive if PBGC takes over your plan?`

Answer 18

Depends on the plan and compensation formula.

Question 19

What is the covered compensation limit for 2106?

Answer 19

265,000 for covered compensation and for DB plans the lesser of 210k or 100 percent of the employees compensation.

Question 20

Life insurance in a QP

Answer 20

25 percent test.

Question 21

Which plans skew benefits in favor of certain groups of people?

Answer 21

Age based profit sharing plan. New comparability. SS int plan for employees who make more than SS wage base.