Ch. 14 Defined Benefit Pension Plan Flashcards Preview

Employee Benefit Final > Ch. 14 Defined Benefit Pension Plan > Flashcards

Flashcards in Ch. 14 Defined Benefit Pension Plan Deck (22):
1

Defined Benefit Pension Plan

a qualified, employer pension plan that guarantees a specified benefit level at and during retirement

2

Objective of plan

provide adequate level of retirement income to employees regardless of their age at plan entry

3

Used when an employer wants to allocate plan costs to the maximum extent to ____ employees

older

4

An older, controlling employee in a small business wants to maximize ....

tax-deferred retirement savings

5

5 advantages

1. tax deferred retirement savings
2. provide adequate retirement levels for employees regardless of their ages at plan entry
3. benefit levels guaranteed by the employer and PBGC
4. allows max amt of tax deferred retirement savings for older HCEs
5. Investment risk with employer

6

5 disadvantages

1. high installation and admin costs
2. complex
3. employees who leave before retirement may receive little benefits from plan
4. employer has recurring annual funding obligations regardless of its business profit levels
5. employer assumes investment risk

7

Flat amount formula

stated dollar amount for each plan participant

8

Flat percentage formula

retirement benefit is a percentage of the employee's average earnings
Typically require minimum service to obtain full percentage

9

Unit credit formula

based on the employee's service with the employer

10

Unit credit formula only takes into account the first ____ of employee's comp

$245,000

11

Two common methods to compute average earnings

career average
final average

12

Career average

uses earning averaged over the employee's entire career with employer

13

Final average

earnings are averaged over a number of years, usually 3-5 years immediately prior to retirement

14

Employer contributions are tax deductible when...

they are made

15

Contributions and earnings are tax-deferred for the employee until....

payments are made

16

What is the max limit on the annual benefit plan for each employee?

$195,000

17

Who sets the max limit?

IRC

18

Are premature distributions are subject to penalty?

yes

19

Can an employer be penalized if minimum required funding is not met?

yes

20

Coverage by the ____ is mandatory

PBGC

21

A defined benefit pension plan may also permit employee contributions to a ...

deemed IRA

22

Subject to ERISA?

yes