Group Retirement Plans

Retirement plan basics include the

• • Plan sponsor
• • Plan administrator
• • Plan participants
• • Plan document
• • Summary plan description

Qualified retirement plans offer

• • Tax incentives
  • o Employers and participants can reduce their taxable income.
  • o Employer contributions to a traditional qualified plan on behalf of a participant are taxable at withdrawal.
  • o Tax-deferred investment earnings.

Employee Retirement Income Security Act (ERISA) requirements for qualified retirement plans include

• • Vesting schedules
  • o Graded vesting (or step vesting)
  • o Cliff vesting

Types of benefit formulas include

• • Defined benefit (DB) plan: The benefit is determined in advance.
• • Defined contribution (DC) plan: The contribution is determined in advance.

Pension plan

• Defined benefit formula

401(k) plan: A retirement plan that allows employees to make pre-tax contributions to the plan through salary reduction.

• • Pre-tax contributions
• • Matching contributions
• • Withdrawals
• • Loans

Roth 401(k) plans: After-tax contributions and tax-free distributions of contributions and earnings.

Two types of plans similar to the 401(k):

• • 403(b) plan
• • 457 plan

Profit Sharing Plans

Stock Bonus Plans

Qualified retirement plans for small employers include

• • SEP
• • SIMPLE IRA
• • SIMPLE 401(k)
• • Keogh Plan

Life Insurance Policy Provisions

Life insurance policies include a number of important provisions.

• • entire contract provision— describes how policy, attached riders, and attached copy of the application make up contract
• • free-look provision— policyowner has stated period of time to examine policy
• • incontestability provision—allows insurers to avoid a life insurance contract if applicant provided inaccurate information considered material misrepresentation
• • grace period provision—specifies length of time following renewal premium due date within which premium may be paid without loss of coverage
• • reinstatement provision—describes conditions necessary for reinstatement
• • misstatement of age or sex provision— describes action an insurer takes to adjust amount of policy benefit or premium if age or sex of the insured is incorrectly stated on application

Cash value life insurance policies have additional provisions.

• • policy loan provision—grants policyowner right to take out policy loan
• • policy withdrawal provision—allows universal policyowner to withdraw up to amount of cash value of policy in cash
• • nonforfeiture provision—provides options to owner of cash value policy if policy lapses or policyowner decides to surrender or terminate policy
• • automatic nonforfeiture benefit—applies if owner hasn’t chosen an option when policy lapses

Exclusions are provisions that describe circumstances when an insurer will not pay the life insurance policy proceeds following the death of the insured.

• • suicide exclusion provision—typically excludes suicide for two years from policy issue
• • aviation exclusion applies to insureds involved with military aviation or experimental aircraft or crew members on small private planes