Retirement

Question 1

Defined Contribution Plan

Answer 1

qualified plan
sponsor defines the formula
either a pension (money purchase pension, target benefit) or profit sharing (401k, stock bonus ESOP)
best for younger employees to accumulate

Question 2

Defined Benefit Plan

Answer 2

Only plan that guarantees final benefit
Pension Plan
Cash Balance Pension Plan ( guarantees the final monthly pension amount) or Traditional Defined Benefit Pension Plan ( guarantees a specific cash balance at retirement age)

Question 3

How is a fully insured traditional defined benefit plan funded?

Answer 3

exclusively by cash value life insurance or annuity contracts

Question 4

DB Plan Features

Answer 4

Max annual pension $280000
Max Compensation in formula $350000
5 year Cliff or 3-7 year graded vesting
joint & survivor payout required
plan sponsor bears risk
no predetermined max deductible employer contribution
must satisfy 50/40 rules

Question 5

DC plan Features

Answer 5

participant directed & bears risk
contributions from employer and employee max $70,000
Max elective deferral $23,500
max compensation in formula $350,000
no guarantee
3-year cliff of 2-6 year graded vesting
Max deductible employer contribution is 25% of payroll

Question 6

DC Additions Limits includes (3)

Answer 6

1. employee elective deferral
2. employer contributions
3. reallocated forfeitures