Midterm Flashcards
(21 cards)
What costs are eliminated during retirement?
Parking, payroll tax, premiums on disability, mortgage, no longer need to save, work related expenses should be reduced or eliminated.
What are some expenses which may increase during retirement?
Healthcare and traveling.
What are the three calculation methods for retirement needs?
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.
What are some factors you may consider for retirement planning?
Remaining work life expectancy, retirement life expectancy, savings, annual income needs, wage replacement ratio, inflation, retirement income sources, investment returns, qualitative factors.
What is sensitivity analysis?
Change variables assumptions to see how it would effect the retirement plan.
What are the four basic ideas about retirement planning that I must know from Chapter 2
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.
Who is a Key EE?
Greater than 5 percent owner or greater than 1 percent owner and compensation exceeding 150,000. Or officer and comp exceeding 170,000
Who is a highly compensated employee?
Greater than 5 percent owner or compensation greater than 120,000. Top 20 percent election?
What does accrues benefit mean?
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.
What is the vesting schedule for defined benefit plans?
307 year graduated or 5 year cliff
What is the vesting schedule for Top heavy plans?
2-6 year graduated or 3 year cliff.
If ADP for NHC EE is 0 to 2 percent, then
ADP for HC= 2x ADP for NHC
If ADP for NHC EE is between 2-8 percent, then
ADP for HC EE is 2+ ADP for NHC
If ADP for NHC is 8 percent or over, then
ADP for HC EE is 1.25 times NHC.
What are the two type of pension plans?
Pension plans and profit sharing plans
What are the main differences between pension plans and profit sharing plans?
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.
What are the differences between defined benefit and defined contribution plans?
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.
What benefits will you receive if PBGC takes over your plan?`
Depends on the plan and compensation formula.
What is the covered compensation limit for 2106?
265,000 for covered compensation and for DB plans the lesser of 210k or 100 percent of the employees compensation.
Life insurance in a QP
25 percent test.
Which plans skew benefits in favor of certain groups of people?
Age based profit sharing plan. New comparability. SS int plan for employees who make more than SS wage base.
