CHAPTER 20
Employee Benefits:
Retirement Plans
SOCIAL SECURITY RETIREMENT BENEFITS
Relationship of Work History to Benefit Amount
Benefits Payable to Retired Workers
Benefits Payable to Spouses and Children
Taxation of Benefits
PENSION PLANS
Traditional Defined Benefit Pension
Defined Contribution Pension
Cash Balance Pension
PLAN QUALIFICATION
Eligibility
Retirement Ages
Form of Payment
Other Plan Design Factors
Benefit and Contribution Limits
Inflation Protection
Permitted Disparity
Vesting
Disability Provisions
Pension Funding
Plan Termination Insurance
DEFERRED PROFIT-SHARING PLANS
EMPLOYEE SAVINGS PLANS
Thrift Plans
Section 401(k) Plans
INDIVIDUAL RETIREMENT ACCOUNTS
Traditional IRA
Roth IRA
Rollover IRA
SIMPLE PLANS
KEOGH PLANS
SECTION 403(b) PLANS
KEY TERMS AND CONCEPTS
Actuarial cost assumptions
Actuarial cost methods
Allocated plans
Average indexed monthly
earnings (AIME)
Cash balance pension plans
Deferred profit-sharing plans
Defined benefit plan
Defined contribution pension
Early retirement
Elective deferrals
Employee Retirement
Income Security Act
(ERISA)
Employee savings plans
Employee stock ownership
plans (ESOPs)
Five-year cliff vesting
401(k) plan
Full actuarial equivalent
Graded seven-year vesting
Individual retirement account
(IRA)
Insured pension plans
Keogh plans
Late retirement
Lump-sum distribution
option
Mandatory retirement age
Normal retirement age
Pension Benefit Guarantee
Corporation (PBGC)
Pension plan
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Permitted disparity
Plan termination insurance
Premature distribution
penalty
Primary insurance amount
(PIA)
Qualified plans
Retirement test
Rollover
Roth IRA
Savings incentive match plan
for employees (SIMPLE)
Section 403(b) plans
Social Security normal
retirement age
Stock bonus plans
Thrift plan
Trust fund plans
Unallocated plans
Vesting
ANSWERS TO QUESTIONS FOR REVIEW AND DISCUSSION
1.
The factors are the age of the individual who elects to receive benefits, the number of years the
individual worked in employment subject to Social Security taxes, the wages earned in such
employment, and the amount of earned income in the year Social Security benefits are paid.
2.
Benefits change based on either months late or months early, relative to the normal retirement
age. There is an actuarial reduction of 5/9 of 1 percent for each of the first 36 months that a
worker retires early, plus an additional 5/12 of 1 percent for each additional month early. For
workers who delay the start of benefits until after the social security normal retirement age,
benefits are increased by 6.5 percentage points per year for those who reached age 62 in 2000.
This figure is scheduled to increase by 0.5 percentage point every two years until it reaches 8
percent.
3.
Retirees who are not yet age 65 can earn up to the annual limit ($10,080 per year as of 2000)
without penalty.
For earnings over the limit, the penalty is a reduction in benefits of $1 for every
$2 in wages. At age 65, retirees may earn an unlimited amount of income and still collect full
Social Security retirement benefits.

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- Spring '10
- briar
- Cash balance plan, Roth IRA, normal retirement age
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