Retirement - 46: Defined Contribution & Defined-Benefit Plan Characteristics Flashcards Preview

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Flashcards in Retirement - 46: Defined Contribution & Defined-Benefit Plan Characteristics Deck (26)
1

The plan document specifies the employer contributions.

Defined-contribution

2

The plan document specifies employee benefits, and then employer contributions are determined by actuarial computations. Assumptions include investment return, life expectancy of retirees, number of employees who reach retirement (turnover), and salary levels of employees prior to retirement.

Defined-benefit

3

Employers' deductible contribution is limited to 25% of participant payroll.

Defined-contribution

4

Annual benefit limit: (1) $210,000 or (2) 100% of the top 3 consecutive years' compensation. The employer must satisfy minimum standards and can deduct more than 25% of payroll.

Defined-benefit

5

Subject to section 415 "annual additions limits" of the lesser of 100% compensation or $52,000.

Defined-Contribution

5

Individual accounts are established.

Defined-contribution

6

Not subject to section 415 "annual additions limits."

Defined-benefit

7

No individual accounts, just commingled funds.

Defined-benefit

9

Voluntary employee contributions are allowed in some plans, such as 401(k) salary deferrals.

Defined-contribution

10

Employees do not contribute.

Defined-benefit

10

Forfeitures reduce the employer's contributions.

Defined-benefit

11

Forfeitures can be reallocated to the remaining employees or used to offset future employer contributions.

Defined-contribution

13

Employers do not guarantee a particular level of benefit at retirement; benefits depend on investment return and number of years of contributions.

Defined-contribution

14

Employee benefit levels are specified and guaranteed.

Defined-benefit

15

Employees bear the investment risk (including inflation risk before retirement, and investment performance).

Defined-contribution

15

Favors younger employees.

Defined-contribution

16

Investment risk is born by employers (who must increase contributions to make up shortfalls).

Defined-benefit

17

Favors older employees.

Defined-benefit

19

Contributions can be allocated based on age-weighting and cross-testing to provide greater benefits to key employees or owners, but cannot be based on past service.

Defined-contribution

19

Lower administrative costs.

Defined-contribution

20

Benefits can be provided based on past service (entry age normal), and higher contributions are made for older, or highly-paid employees.

Defined-benefit

21

Higher administrative costs.

Defined-benefit

22

Costs are predictable.

Defined-contribution

23

Costs are less predictable.

Defined-benefit

24

No PBGC insurance coverage.

Define-contribution

25

PBGC insurance coverage is provided

Defined-benefit