FM8e- ch29 - 29 1 WEB CHAPTER 29 Pension Plan Management...

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29 - 1 Pension plan terminology Defined benefit versus defined contribution plans Pension fund investment tactics Retiree health benefits WEB CHAPTER 29 Pension Plan Management
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29 - 2 They constitute the largest class of investors. They hold about 33% of all U. S. stocks. How important are pension funds?
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29 - 3 Defined benefit plan: Employer agrees to give retirees a specific benefit, generally a percentage of final salary. Defined contribution plan: Employer agrees to make specific payments into a retirement fund, frequently a mutual fund. Retirees’ benefits depend on the investment performance of their own fund. 401(k) is the most common type. Pension Plan Terminology (More. ..)
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29 - 4 Profit sharing plan: Employer payments vary with the firm’s profits. (Defined contribution, but as a percentage of profits). Cash balance plan: Employer promises to put a specified percentage of the employee’s salary into the plan, and to pay a specified return on the plan’s assets. (More. ..)
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29 - 5 Vesting: Gives the employee the right to receive pension benefits at retirement even if he/she leaves the company before retirement. Deferred vesting: Pension rights are not vested for the first few years. Portability: A “portable” pension plan can be moved to another employer if the employee changes jobs. (More. ..)
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29 - 6 Fully funded: Value of plan assets equals the present value of expected retirement benefits. Underfunded : Plan assets are less than the PV of the benefits. An “unfunded liability” is said to exist. Overfunded: The reverse of underfunded. (More. ..)
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29 - 7 Actuarial rate of return: The rate of return: used to find the PV of expected benefits (discount rate). at which the fund’s assets are assumed to be invested. Employee Retirement Income Security Act (ERISA): The federal law governing the administration and structure of corporate pension plans. (More. ..)
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Pension Benefit Guarantee Corporation (PBGC): A government agency created by ERISA to ensure that employees of firms which go bankrupt before their defined benefit plans are fully funded will receive some minimum level of benefits. However, for high income employees
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This note was uploaded on 08/29/2009 for the course FM Finance taught by Professor Unknown during the Spring '09 term at DeVry Addison.

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FM8e- ch29 - 29 1 WEB CHAPTER 29 Pension Plan Management...

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