Читать книгу Auditing Employee Benefit Plans - Josie Hammond - Страница 21

All of the plans described previously are discretionary defined contribution plans.The employer may establish a contribution commitment in a discretionary plan, but the law does not require one. In contrast, active money Purchase Pension plans require an annual contribution. They are also subject to the joint and survivor annuity rules, discussed in the following sections. Historically, such plans were popular because they were necessary when the employer wished to contribute up to 25 percent of pay. That is no longer the case and, as a result, money purchase plans have declined in popularity.

One form of money purchase plan persists. This is the target benefit plan. It is a hybrid plan that combines features of a defined benefit and a defined contribution plan. It is classified as a defined contribution plan, because participant account balances are maintained. However, the amount of the contribution for each participant is based upon an actuarial formula that takes into account the participant’s age, compensation, and benefit formula. A typical formula is to target a specific percentage of pay as a retirement benefit. The current year’s contribution for that participant would be calculated based upon the amount required to be deposited each year to purchase an annuity at normal retirement age of that targeted percentage of pay. But, there is no promise that the employee will actually accumulate that targeted amount and no requirement that annuity contracts be purchased. The employee bears the gains and losses of investment performance. At retirement age, their balance may fund more or less than that targeted amount.