Pension Plan

Plan Sponsor: creates and administers and bear the liabilities of the pension plan.

Plan Participant: those receiving a promise of retirement income

Types of plans:

Defined-benefit plan

Cash balance plan – maintain individual account instead of funds

Defined-contribution plan – Participant directed

Profit Sharing plan – defined contribution but by profit; Sponsor directed and selects the investment

Fund Status: PV of assets – PV of liabilities

Surplus = PV of assets – PV of liabilities

Fully Funded: Surplus>=0

Underfunded: Surplus<0

Accumulated Pension Obligation (ABO) – PV of up-to-date liabilities

Projected Pension Obligation (PBO) – ABO + PV of future compensation increases

Total future liability – take compensation change and inflation etc. into account.

Retired lives: those receiving benefits

Active lives: those working toward receiving benefits

Defined Benefits: Employee subjected to early termination

Defined Contribution: Employer has to provide enough investment choices; Need IPS