Which of the following defined contribution plan types are o

Which of the following defined contribution plan types are often used to help employers maximize benefits for older employees?

(1) fixed formula age-weighted

(2) 401(k)

(3) cross-tested

(4) stock bonus

Question 15 options:

a. (1) and (3) only

b. (1) (2) and (3) only

c. (2) (3) and (4) only

d. (1), (2), (3), and (4)

Solution

1. Fixed formula age weighted plan is a defined contribution plan allocation that allows higher plan contributions for older plan entrants/older employees. Its has Age-weighted components for determining profit sharing in which the allocation formula contains actuarial age-weighting factor that gives a higher weightage to older plan entrants.

2.A 401k is a qualified retirement plan popularly known as employer sponsored retirement plan that allows eligible employees of a company to save and invest for their own retirement on a tax deferred basis. Thus this helps maximize benefits to older employees.

3.A Cross Tested plan is a type of Profit Sharing plan that can be designed to concentrate employer contributions in favor of Older, Higher Compensated Employees. Cross Tested plans create multiple benefit levels within a retirement plan. Thus this plan also helps maximising benefits of older employees.

4. A stock bonus plan is a qualified retirement plan defined-contribution profit sharing components, to which employers contribute company stock instead of cash. On the employee side, the advantage is that it gives workers a vested interest in doing a good job. The idea is that if employees perform at the peak of their potential, the company will become more profitable, the stock price will rise, and employees will reap the benefits. Stock bonus plans are also valuable tools for performing employees and not routed only towards older employees.

Thus correct answer is (b) 1,2 and 3 only as explained above.