Although practices may differ with respect to the involvement of the corporate sponsor in objective setting and asset allocation retirement, selection of investment managers is rarely delegated. In terms of dollars of assets, most funds are managed by investment managers outside of the corporation, inasmuch as few companies have the internal expert staff needed to perform this function. Moreover, corporate management may prefer to delegate the fiduciary responsibility for investment, and some companies believe that having outside managers reduces some of the problems with respect to pensions in labor negotiations. (more…)

This is usually referred to as the actuarial accrued liability. It is that portion of the actuarial present value of all future benefits (PVFB) that is assigned by the actuarial method to the period prior to the valuation date. present value of all future benefits is the present value of all benefits accrued and unaccrued, past and future. It is a measure of the total obligations of the plan, past and future. That portion assigned to the past is called the actuarial accrued liability. This concept will be discussed again later in the section on actuarial methods. Due to the wide variety of actuarial methods in use, the same plan and assumptions can generate Significantly different actuarial accrued liabilities. In fact, one commonly used method (Aggregate Actuarial Cost) produces a zero actuarial accrued liability by definition. It funds costs over future payrolls only. (more…)

The treatment of investment risk probably is the least satisfactory area in the establishment of investment objectives. In spite of all the work published on risk in the investment literature of the past several years, risk tolerance often is not specified in setting investment objectives and investment performance measurement. Sometimes, statements of risk are made in general terms (e.g., the fund should not suffer a loss in any designated period) or a maximum tolerable decline in asset value is specified. Such specifications of risk are very difficult for an investment manager to deal with. (more…)

Like the peculiar behavior of the dog in the night in the Sherlock Holmes story “Silver Blaze,” one of the obvious but overlooked clues about the insurance orientation of TIAA-CREF appears in the names of the accounts that are given to the various accumulation alternatives available to you. Each account is labeled an “annuity,” and each contribution is called a “premium.” To avoid confusion you should note that what TIAA-CREF labels as an “account,” you probably would call an investment choice or fund.

Stripped to the basics, your Retirement Annuity (or “Retirement Annuity”) boils down to an accumulation agreement between you and TIAA-CREF. (more…)

Approximately one-fifth (20 percent) of post retirement income sources today comes from qualified retirement plan assets. Within 20 years, that number will increase to just under one-third (30 percent) of post retirement income. These are broadly defined as assets on which you have not yet paid retirement income taxes, though there is one exception in the Roth IRA. (more…)

Having decided that a corporation can afford and should offer some type of employee benefits plan, the next step is to determine what type of plan or plans the company should adopt.

Employee benefit plans that provide some form of deferred benefits (that is, benefits deferred until after the employee retires) fall into two broad categories. A defined contribution pension plans provides an individual account for each participant and benefits are based upon the amount contributed by the company, or by the company and the employee, to that account, together with the investment results of the account. (more…)

Classification of Pension Plans

There are two main criterions to distinguish Pension Plans. The first criterion is the asset base for the liabilities for benefits promised to plan participants or employees:

1. Pension plans without a fund ( pay as you-go plans)
2. Pension plans with a fund (funded pension plans). (more…)

The lower age boundary defining “older worker” seems to depend on the context. Much of the retirement literature uses age 65 and older to define this category, a choice that reflects the salience of age 65 in previously enforced policies of mandatory retirement and entitlement for full Social Security benefits, as well as the general usage of the 18-to-64 age range in defining the “prime age” workforce. Within this context, “older worker” referred to someone whose continued attachment to the labor force ran counter to the normative pattern of retirement; by working beyond the “normal” retirement age of 65, these workers were considered categorically different from those who eschewed the option of “early” retirement. (more…)

Previous rules about retirement planning are no longer effective in today’s environment. The increasing cost of healthcare, longer life expectancy and the economic downturn are factors that force retirees to seen better growth in their portfolio. Meanwhile, there is also the pressure that drastic market drops won’t completely destroy their nest egg. There are an increasing number of financial planners who are rethinking their old strategies. Below are the four new practices to look into: (more…)