Friday, 16 November 2012
benefit schedule
A schedule prepared by theadministrators listing all scheme members (includingdependants in receipt of benefits), and the benefits towhich they are entitled. Usually drawn up when the administration is changing hands (eg when a scheme is being transferred to the PPF).
benefits
Any payments made to a beneficiary, including tax-free lump sums, pension payments and death benefits.
benefits statement
A statement or estimate of benefits payable in respect of an individual's membership of a pension scheme, eg annually during employment, on retirement, in the event of wind up.
beta
Returns on a portfolio which can be attributed to movements in the market as a whole, rather than the skills of a particular fund manager. Usually achieved by holding a portfolio whichexactly mirrors a particular index
breach of trust
Any act or omission on the part of the trustee that is inconsistent with the terms ofthe trust agreement or the law of trusts.
buy-out
The purchase of an annuity for each member of a scheme which will guarantee pension benefits as nearly as possible equal to those which would otherwise be paid by the scheme.
buy-out debt
The amount of money required to purchase life assurance annuities for each member of a scheme which will guarantee pension benefits equal to those which would otherwise be paid by the scheme.
This may also be referred to as the 'section 75 debt' or 'debt on the employer'.
This may also be referred to as the 'section 75 debt' or 'debt on the employer'.
Thursday, 15 November 2012
What are simplified employee pension plans (SEPs)?
An employer may sponsor a simplified employee pensionplan or SEP. SEPs are relatively uncomplicated retirement savings vehicles. A SEP allows employers to make contributions on a tax-favored basis to individual retirement accounts (IRAs) owned by the employees. SEPs are subject to minimal reporting and disclosure requirements.
Under a SEP, the employee must set up an IRA to acceptthe employer's contributions. As a general rule, the employer can contribute up to 25 percent of the employee's pay into a SEP each year, up to a maximum of $40,000.
Starting January 1, 1997, employers may no longer setup Salary Reduction SEPs. However, the Small BusinessJob Protection Act of 1996 (Public Law 104-188) permitted employers to establish SIMPLE IRA plans beginning in 1997. A SIMPLE IRA plan allows salary reduction contributions up to $6,000 in2001 ($7,000 in 2002).
Under a SEP, the employee must set up an IRA to acceptthe employer's contributions. As a general rule, the employer can contribute up to 25 percent of the employee's pay into a SEP each year, up to a maximum of $40,000.
Starting January 1, 1997, employers may no longer setup Salary Reduction SEPs. However, the Small BusinessJob Protection Act of 1996 (Public Law 104-188) permitted employers to establish SIMPLE IRA plans beginning in 1997. A SIMPLE IRA plan allows salary reduction contributions up to $6,000 in2001 ($7,000 in 2002).
What are defined benefit and defined contribution pension plans?
there are two types of pension plans: defined benefit plans and defined contribution plans. A defined benefit plan promises participants a specified monthly benefit at retirement. The plan may state this promised benefit asan exact dollar amount, suchas $100 per month at retirement. Or, more commonly, it may calculate abenefit through a plan formula that considers such factors as salary and service -for example, 1 percent of average salary for the last 5 years of employment for every year of service with anemployer.
A defined contribution plan, on the other hand, does not promise a specific amount of benefits at retirement. In these plans, the participant or the employer (or both) contribute to the participant's individual account under the plan, sometimes at a set rate, such as 5 percent of their earningsannually. These contributions generally are invested on the participant's behalf. The participant will ultimately receive the balance in their account, which is based on contributions plus or minus investment gains or losses. The value of the account willfluctuate due to changes in the value of investments. Examples of defined contribution plans include 401(k) plans, 403(b) plans, employee stock ownership plans, and profit-sharing plans. The general rules of ERISA apply to each of thesetypes of plans, but some special rules also apply.
A money purchase pension plan is a plan that requires fixed annual contributions from an employer to a participant's individual account. Because a money purchase pension plan requires these regular contributions, the plan is subject to certain funding and other rules.
A defined contribution plan, on the other hand, does not promise a specific amount of benefits at retirement. In these plans, the participant or the employer (or both) contribute to the participant's individual account under the plan, sometimes at a set rate, such as 5 percent of their earningsannually. These contributions generally are invested on the participant's behalf. The participant will ultimately receive the balance in their account, which is based on contributions plus or minus investment gains or losses. The value of the account willfluctuate due to changes in the value of investments. Examples of defined contribution plans include 401(k) plans, 403(b) plans, employee stock ownership plans, and profit-sharing plans. The general rules of ERISA apply to each of thesetypes of plans, but some special rules also apply.
A money purchase pension plan is a plan that requires fixed annual contributions from an employer to a participant's individual account. Because a money purchase pension plan requires these regular contributions, the plan is subject to certain funding and other rules.
Fuction of ERISA
Requires plans to provide participants with information about the plan including important information about plan features and funding. The plan must furnish some information regularly and automatically. Some is available free of charge, some is not.
*. Sets minimum standards for participation, vesting, benefit accrual and funding. The law defines how long a person may be required to work before becoming eligible to participate in a plan, to accumulate benefits, and tohave a non-forfeitable rightto those benefits. The law also establishes detailed funding rules that require plan sponsors to provide adequate funding for your plan.
*. Requires accountability of plan fiduciaries. ERISA generally defines a fiduciary as anyone who exercises discretionary authority or control over a plan's management or assets, including anyone who provides investment advice to the plan. Fiduciaries who do not follow the principles of conduct may be held responsible for restoring losses to the plan.
*. Gives participants the right to sue for benefits and breaches of fiduciary duty.
*. Guarantees payment of certain benefits if a definedplan is terminated, througha federally chartered corporation, known as the Pension Benefit Guaranty Corporation.
*. Sets minimum standards for participation, vesting, benefit accrual and funding. The law defines how long a person may be required to work before becoming eligible to participate in a plan, to accumulate benefits, and tohave a non-forfeitable rightto those benefits. The law also establishes detailed funding rules that require plan sponsors to provide adequate funding for your plan.
*. Requires accountability of plan fiduciaries. ERISA generally defines a fiduciary as anyone who exercises discretionary authority or control over a plan's management or assets, including anyone who provides investment advice to the plan. Fiduciaries who do not follow the principles of conduct may be held responsible for restoring losses to the plan.
*. Gives participants the right to sue for benefits and breaches of fiduciary duty.
*. Guarantees payment of certain benefits if a definedplan is terminated, througha federally chartered corporation, known as the Pension Benefit Guaranty Corporation.
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