Pension Plan Basics
What are the two main types of pension plans
Defined Benefit and Defined Contribution Plans
What is the minimum contribution required for a Defined Contribution Plan each year?
The amount specified in the plan document
Can employees take in-service withdrawals from a pension plan?
Generally no, unless they are at least 59½ years old due to the SECURE Act
What type of pension plan requires an actuary every year?
Defined Benefit Plan
What is a 412(e)(3) plan funded by?
A life insurance or annuity contract
Which law requires pension plans to be fully funded every year?
ERISA
What is a Funding Target in a pension plan?
The present value of all accrued or earned benefits as of the start of the plan year
What is the investment limit for pension plan assets in employer securities?
10%
Which type of plan typically has lower administrative costs?
Defined Contribution Plan
What is the main benefit of a Cash Balance Plan for younger employees?
It provides a hypothetical account balance with employer-guaranteed contributions and earnings.
What is the primary difference between Defined Benefit and Defined Contribution Plans in terms of investment risk?
In DB plans, the employer assumes investment risk; in DC plans, the employee assumes it.
What is the Shortfall Amortization Rule?
If plan assets are less than 100% of obligations, the shortfall must be amortized over time.
What is the purpose of the Pension Benefit Guaranty Corporation (PBGC)?
It insures benefits promised by Defined Benefit Plans if the employer cannot pay.
What is the key advantage of Social Security Integration for high-income employees?
Provides an excess benefit for earnings above the Social Security wage base.
How does a Target Benefit Plan determine contributions?
Based on the participant’s age, favoring older employees.