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11 Cards in this Set

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  • Back
Why have pension plans grown in importance?
1. income has grown steadily since WWII
2. people are living longer
3. tax free for both employer and employee
Who are plans sponsors?
1. private businesses (corporate or private plans)
2. federal, state, local (public plans)
3. unions (Taft Hartley plans)
4. individuals (individually sponsored plans)
What are the two widely used types of pension plans?
1. defined benefit plan
2. defined contribution plan
What is a defined benefit plan?
plan sponsor agrees to make specified dollar payments annually to qualifying employee beginning at retirement; retirement benefits are guaranteed; employer makes investment choices; employer bears investment risk
What are insured benefit plans?
defined benefit plans that are quaranteed by life insurance products
What is the Pension Benefit Guaranty Corporation (PBGC)?
insures the vested (when an employee reaches a certain again, having completed enough service to meet minimum requirements) benefits of participants
What is a defined contribution plan?
plan sponsor is responsible for making specified contributions to the plan on behalf of the qualifying participants, not payments after retirement; e.g. 401k; retirement benefits are not guaranteed; employee invests
What is a 401(k) plan?
lowest cost, least administrative problems; employer makes contribution and employee chooses how it is invested; usually invest in mutual funds
What are hybrid pension plans?
combinations of defined benefit and defined contribution plans; e.g. cash balance pension plan- portable from one job to another
What is the Employee Retirement Income Security Act of 1974 (ERISA)?
1. established funding standards for minimum contributions; plans cannot be funded out of current cash flow; program must be continuously funded
2. "prudent man" rule; trustee is responsible for investments
3. vesting requirements; after 5 yrs you get 25% of accrued benefits
4. Pension Benefit Guaranty Corporation (PBGC); insures benefits
What are the proposed ways of fixing the Social Security problem in 2015 when social security outlays exceed receipts?
1. don't only invest in T-securities; invest in stocks
2. privatization; allow individuals to personally allocate assets