RMI 2101 Lecture 12: Topic 12-retirement plans

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Retirement plans: defined benefit or defined contribution: defined contribution plans (dc) Er contributes % of ee salary in dc plan on behalf of the employee. Key: uncertainty- key investment risk resides with employee: 401k plans. 2016 max ee deferral ,000 / year if employees are < 50. If employees > 50 then add ,000: section 403(b) plan. Very similar to 401k plans: traditional pension plans (db) Employer contribution to meet obligation to employee. Key: er bears uncertainty of investment risk. Plan purchases in life annuity that yields a yearly amount of ,800. Salary at 65 = ,000: 64= ,000, 63= ,000, 63= ,000, 61= ,000. Assume 2% and a 5 year formula is 5 year average salary. Benefit= (# of years of service)(final average salary)(2%) = ,800: unit= % salary- career average salary, example: Yos, er promises to pay 2% average salary f career. Years of service= 25 years: benefit of retirement.

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