Address 22: Pension Benefit Formulas

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´╗┐Address 22: Pension Benefit Formulas Approaches to retirement arranges Defined advantage arranges Elements of characterized advantage equations Non-pay-related recipes Pay-related equations Social Security coordination Accrual rules Benefit shapes Miscellaneous advantages Defined commitment equations

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Defined advantage Plan equation characterizes the advantage that will be paid to the worker Employer bears speculation hazard Generally supports more seasoned, longer administration representatives Benefits could possibly be convenient More entangled to convey Complicated organization Defined commitment Plan indicates the sum the business will add to the arrangement Employee bears venture chance Provides versatile advantages Better for more youthful workforce Easier to impart Relatively simpler authoritative and government directions Approaches to Retirement Plans

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Averaging of pay Final normal income (FAE) Career normal Benefit approach Annuity Lump whole Elements of Defined Benefit Formulas benefit Elapsed time Date of contract Date of cooperation Hours Earnings Base pay just W-2 pay Bonuses Commissions

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Non-Pay Related Defined Benefit Formulas Flat-sum $500 every month Unit-advantage $50 every month times years of administration

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Pay-Related Defined Benefit Annuity Formulas Career normal pay arranges Benefit is a component of profit over whole vocation with the business 2% of profession income Final normal pay Flat-rate half of pay at retirement Unit-advantage 1.5% of conclusive five year normal profit (FAE(5)) times years of administration

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Cash adjust Pay credit = % of every year's compensation put into a "record" 8% of pay paid into a "record" every year Interest credit Rate equivalent to one-year Treasuries credited to the record every year Account adjust paid at end or retirement Pension value % are gathered every year Accumulated credits are increased by definite normal profit and sum is paid as a single amount 10% given for each year of administration Pay-Related Account Balance Defined Benefit Formulas

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Social Security Offset Method Offset impediments No more than .65% of pay up to secured pay (CC) might be counterbalanced Limit administration to 35 years Further diminished for sponsored early retirement Cannot lessen more than half of gross advantage Example: 1% of FAE(5) times benefit - .65% of FAE(5) up to (CC) times benefit up to 35 years

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Social Security Excess Method Excess Limitations Maximum contrast between the base % and the abundance % is .65% Limit administration to 35 years Further decreased for financed early retirement Examples 2% * FAE * SVC + .65% * FAE > CC * SVC 2% * FAE <= CC * SVC + 2.65% * FAE>CC * SVC

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Defined Benefit Accrual Rules Must pass one of the accompanying 3% control Accrual must be no less than 3% of aggregate advantage 133 1/3% manage Rate of collection must be < 4/3 of prior accumulation Fractional lead Use an administration customize to decide the advantage 1% of pay for 10 yrs + 1.5% for next 10 yrs Projected advantage = 25% of pay, AB > 3%*25% = .75% - > passes 3% administer 1.50%/1.0% = 1.5 - > falls flat 133 1/3% run

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Forms of Payment for Defined Benefit Plans Life annuity Lump entireties Joint and survivor half joint and survivor required by law Social Security leveling alternative Certain and life choices

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Miscellaneous Benefits Paid Under Defined Benefit Plans Preretirement survivor annuity Incidental demise benefits Disability benefits Reduced accumulated advantage Continued collection Definition of inability Age/benefit prerequisites Early retirement supplements

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Defined Contribution Formulas Money buy arranges Amount added to an individual record Account develops with premium Target arranges Amount contributed depends on the sum important to amass to an objective advantage Social Security mix - overabundance just Usually incorporate on wage base Maximum distinction = 5.7%