1. Describe three criteria used to qualify pension plans for preferential tax treatment.
The first criterion is a defined benefit plan. With define benefit plans; retirees received guaranteed payments for the duration of their lives. Second, defined contribution plans are guaranteed retirement benefits. These benefits usually are expressed in terms of monthly sum equal to a percentage of a participant’s preretirement pay from the employer. Lastly, hybrid plan that combine features of traditional defined benefit and defined contribution. Four common hybrid retirement plans include cash balance plans, target benefit plans, money purchase plans, and age-weighted profit-sharing plans.
2. Are employees more likely to favor defined contributions plans over defined benefit plans? What about employers? Explain your answer. As stated in the text, there has been a noticeable decrease in participation rates for defined benefit plans over the last 20 years. In 1992-1993, 32 percent of private sector employees participated in defined contribution plans, and slightly …show more content…
Summarize the controversial issues regarding cash balance plans. The controversial issues regarding cash balance plan are as follows: The first issue centers on favorable treatment of younger workers and unfavorable treatment of older employees. The second issue is based on the practice of converting traditional define benefit plans to cash balance plans. Cash Balance plans are defined benefit plans that look like defined contribution plans. As with a 401(k) plan, the emphasis is on an account balance. In fact, much of the controversy about the plans relates to their behaving exactly like a defined-contribution plan. There is no promise of a lifetime income, but there is an account balance that grows with interest credits and pay-related credits, like a 401(k) plan. Workers can choose to receive their benefits in monthly payments or in one lump sum equal to — or sometimes larger than — the account
The first criterion is a defined benefit plan. With define benefit plans; retirees received guaranteed payments for the duration of their lives. Second, defined contribution plans are guaranteed retirement benefits. These benefits usually are expressed in terms of monthly sum equal to a percentage of a participant’s preretirement pay from the employer. Lastly, hybrid plan that combine features of traditional defined benefit and defined contribution. Four common hybrid retirement plans include cash balance plans, target benefit plans, money purchase plans, and age-weighted profit-sharing plans.
2. Are employees more likely to favor defined contributions plans over defined benefit plans? What about employers? Explain your answer. As stated in the text, there has been a noticeable decrease in participation rates for defined benefit plans over the last 20 years. In 1992-1993, 32 percent of private sector employees participated in defined contribution plans, and slightly …show more content…
Summarize the controversial issues regarding cash balance plans. The controversial issues regarding cash balance plan are as follows: The first issue centers on favorable treatment of younger workers and unfavorable treatment of older employees. The second issue is based on the practice of converting traditional define benefit plans to cash balance plans. Cash Balance plans are defined benefit plans that look like defined contribution plans. As with a 401(k) plan, the emphasis is on an account balance. In fact, much of the controversy about the plans relates to their behaving exactly like a defined-contribution plan. There is no promise of a lifetime income, but there is an account balance that grows with interest credits and pay-related credits, like a 401(k) plan. Workers can choose to receive their benefits in monthly payments or in one lump sum equal to — or sometimes larger than — the account