Financial Planner

Category - Retirement Savings and Income Planning

Of all the benefits possible for a company to employ; what one has the distinguishing feature establishing separate accounts for each participant, using a hypothetical account balance?
  1. Cash Balance Plan
  2. Money Purchase Plans
  3. Employee Stock Ownership Plan (ESOP)
  4. Thrift Plan
Explanation
Answer: A - Cash balance plans have the distinguishing feature of establishing separate accounts for each participant, using a hypothetical account balance. These hypothetical allocations and earning are designed to imitate the actual contributions and earnings that would occur to an employee’s account under a defined contribution plan. Employee balances grow based on hypothetical earnings. The interest rate varies from year to year and is communicated to the employee at the start of each year. Employer must pay benefits in accordance with plan provisions even in low- or no-profit years.
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