Читать книгу Auditing Employee Benefit Plans - Josie Hammond - Страница 14

Exhibit 1-1 Defined contribution and defined benefit

	Defined contribution	Defined benefit
	Pension	Welfare	Pension	Welfare
Purpose	Fund retirement income	Pay current, post-employment or post-retirement benefits	Fund retirement income	Pay current, post-employment or post-retirement benefits
Benefit Amount	Based on participant account balances	Same as pension	Based on a formula defined in the plan document	Same as pension
Actuary Required	No	Maybe	Yes	Maybe
Contributions	Made on a discretionary basis or by formula	Specified by terms of the plan	Actuarially determined	Pay-as-you-go, determined by actuary or by formula
Assets	Value equals accumulated benefits	Same as pension	Value not equal to accumulated benefits	Same as pension
Individual Accounts	Balance represents accrued benefit for each participant	Same as pension	No—even cash balance plans lack individual accounts	No
Examples of Plans	Profit-sharing, stock bonus, 401(k), money purchase, target benefit, thrift or savings, ESOP, 403(b)	Flexible spending accounts, medical, dental, disability, legal services, severance	Defined benefit pension plan, cash balance	Medical, dental, life, disability, legal services, severance

You might wonder why some plans end up classified as both defined contribution and defined benefit. This status relates to how benefits are determined, and not by the type of benefit provided. Consider a simple fringe benefit (not an ERISA plan). For example, if the employer promises to provide meals for all full-time employees without regard to the dollar cost or amount consumed, that is a defined benefit arrangement. In contrast, if the employer says that it will set aside $2,000 at the beginning of the year to cover meal costs, and the employee can choose when and how to spend it but that when it is used up, there is no more coverage, the plan would be a defined contribution arrangement.

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