11. Evaluating employer plans

*Please select one answer from each of the bold options in (parenthesis)*

What retirement plan options are available?

It is always your responsibility to learn about the basic and supplemental (voluntary) plans an employer may offer. There are noncontributory and contributory pension plans, which stipulate vesting requirements. Within these types, there is either a defined contribution plan or a defined benefit plan. Many employers also offer supplemental or voluntary programs such as profit-sharing, thrift and savings, and 401(k) plans.

Consider a dialogue between Paolo and Sharon, both new employees at a big Fortune 500 company. Both had taken a personal finance class in college several years ago. Today, they are reviewing their notes from the recent new-employee benefits meeting and helping each other complete the notes theyve taken.

PAOLO: I heard the HR manager say that the company uses the graded schedule. Im not sure what that means.

SHARON: I remember this from personal finance class. Graded schedule assumes that vesting is (Gradual / Full) over (6 / 3) years.

PAOLO: Whats the other option?

SHARON: The cliff vesting schedule. Cliff vesting requires (Full / Gradual) vesting over (6 / 3) years.

PAOLO: Did you understand everything about the pension plans? Could you help me there?

SHARON: Sure! A pension plan is a (Noncontributory / Contributory) plan, which means that the contribution cost is (Paid by the company / Shared by the employer and employee) . In addition, it is a defined (Contribution / Benefit) plan, which means that the plan states how much (They / We/ We all)have to contribute.

PAOLO: I heard the HR manager say that they offer two supplemental plans, but I only wrote down the traditional 401(k) plan. Its the type of plan where we can contribute (Pre-tax / After-tax) , up to (The maximum set by plan provisions / an IRS-set maximum / What we can afford) . What is the other plan?

SHARON: The other plan she mentioned is (ERISA / The profit-sharing plan / The Pension Protection Act) .

PAOLO: Because our employer is a big Fortune 500 company, our plan is voluntary. It takes everyones (Benefits / Contributions) and heavily invests it in company stock.

SHARON: Well, I think I have my notes complete. I may need to clarify a few things that will apply just to me, vesting, profit-sharing percentages, and retirement age.

PAOLO: Agreed. Thanks for helping me complete my notes!