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11 Cards in this Set
- Front
- Back
Why have pension plans grown in importance?
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1. income has grown steadily since WWII
2. people are living longer 3. tax free for both employer and employee |
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Who are plans sponsors?
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1. private businesses (corporate or private plans)
2. federal, state, local (public plans) 3. unions (Taft Hartley plans) 4. individuals (individually sponsored plans) |
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What are the two widely used types of pension plans?
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1. defined benefit plan
2. defined contribution plan |
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What is a defined benefit plan?
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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
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What are insured benefit plans?
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defined benefit plans that are quaranteed by life insurance products
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What is the Pension Benefit Guaranty Corporation (PBGC)?
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insures the vested (when an employee reaches a certain again, having completed enough service to meet minimum requirements) benefits of participants
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What is a defined contribution plan?
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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
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What is a 401(k) plan?
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lowest cost, least administrative problems; employer makes contribution and employee chooses how it is invested; usually invest in mutual funds
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What are hybrid pension plans?
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combinations of defined benefit and defined contribution plans; e.g. cash balance pension plan- portable from one job to another
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What is the Employee Retirement Income Security Act of 1974 (ERISA)?
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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 |
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What are the proposed ways of fixing the Social Security problem in 2015 when social security outlays exceed receipts?
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1. don't only invest in T-securities; invest in stocks
2. privatization; allow individuals to personally allocate assets |