tailieunhanh - Lecture Managerial finance - Chapter 29: Pension plan management

Chapter 29 provides knowledge of pension plan management. This chapter presents the following content: Pension plan terminology, defined benefit versus defined contribution plans, pension fund investment tactics, retiree health benefits. | Chapter 29 Pension Plan Management Topics in Chapter Pension plan terminology Defined benefit versus defined contribution plans Pension fund investment tactics Retiree health benefits How important are pension funds? They constitute the largest class of investors. They hold about 33% of all U. S. stocks. Pension Plan Terminology 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. (More.) 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.) . | Chapter 29 Pension Plan Management Topics in Chapter Pension plan terminology Defined benefit versus defined contribution plans Pension fund investment tactics Retiree health benefits How important are pension funds? They constitute the largest class of investors. They hold about 33% of all U. S. stocks. Pension Plan Terminology 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. (More.) 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.) 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.) 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.) Employee Retirement Income Security Act (ERISA): The federal law governing the administration and structure of corporate pension plans. (More.) 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 (., airline .