Lecture 24 Profit-Sharing and Similar Plans

  • 190 views
Uploaded on

 

  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Be the first to comment
    Be the first to like this
No Downloads

Views

Total Views
190
On Slideshare
0
From Embeds
0
Number of Embeds
0

Actions

Shares
Downloads
3
Comments
0
Likes
0

Embeds 0

No embeds

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
    No notes for slide

Transcript

  • 1. Lecture 24 Profit-Sharing and Similar Plans
    • Trends
    • Qualified Profit-Sharing Plans
    • Savings Plans
    • Employer Stock Plans
      • Stock Bonus Plan
      • Employee Stock Ownership Plan (ESOP)
    • Errors in Text - Chapter 22
  • 2. Trends in Qualified Plans
    • Most new plans are defined contribution, rather than defined benefit
    • Some employers are shifting from defined benefit to defined contribution
    • Reasons
      • Less risk to employer
      • Recent stock market performance (since 1982)
      • Many employees prefer defined contribution
      • PBGC premium increases
    • Large, unionized companies still tend to have defined benefit plans
    • Now more plans are defined contribution but more workers covered under defined benefit
  • 3. Qualified Profit-Sharing Plans
    • Eligibility
    • Vesting
    • Employer contributions
      • Formula
      • Discretionary
      • Deductible amount limited to 15% total compensation
    • Allocation to employee accounts
      • Generally based on compensation
    • Age-based allocation
      • Requires cross-testing
    • Forfeitures
      • Can be allocated to remaining participants
    • Participant directed investments
    • Withdrawals and loan provisions
  • 4. Savings or Thrift Plans
    • Employee contributions are after-tax
    • Matching employer contributions
    • Voluntary
    • Nondiscrimination rules
    • Advantages
      • Tax deferred savings
      • Availability of funds
    • Disadvantages
      • Does not maximize tax advantage
  • 5. Employer Stock Plans
    • Advantages
      • Deduction for noncash contributions
      • Creates market for employer stock
      • Employees gain ownership interest
      • Unrealized appreciation is deferred
      • Provides some protection against hostile take-overs
    • Two types
      • Stock bonus plan
      • ESOP
  • 6. Stock Bonus Plans
    • Considered qualified defined contribution plan
    • Stock allocated to each employee
    • Distributions subject to restrictions
      • 10% penalty if not 59 1/2, retired, disabled or dead
      • Must begin within 5 years of separation or 1 year of retirement
    • Employee at risk for stock performance
  • 7. Employee Stock Ownership Plan
    • Three parties
      • Employer
      • Bank
      • ESOP
    • Allows company to borrow money and repay with fully deductible payments
    • Initially, additional tax benefits for funding ESOPs
    • Diversification requirement
      • If 55 with 10 years of service, can select to diversify
  • 8. Errors in Chapter 22
    • Page 557 - Figure 22-1
      • 1st graph is Defined Benefit
    • Page 560 - 4th line from bottom
      • Should be “(by assuming ...”
    • Page 562 - Examples
      • if 10% of compensation below wage base, then can contribute 15% (maximum) of compensation above wage base
      • if 4% of compensation below wage base, then can contribute 8% of compensation above wage base
    • Page 566 - Second paragraph from bottom
      • Statement “or the insurer’s term insurance rates” should be deleted