How many full-time public employees are covered by defined benefit plans? - Ninety-one percent
How many full-time public employees are covered by defined contribution plans? - nine percent
Prudent-Person Rule - Requires each retirement board member to perform his or her duties as a
prudent perso...
CPFO Exam - Risk, Benefits, Procurement How many full -time public employees are covered by defined benefit plans? - ✔✔ Ninety -one percent How many full -time public employees are covered by defined contribution plans? - ✔✔ nine percent Prudent -Person Rule - ✔✔ Requires each retirement board member to perform his or her duties as a prudent person would when acting in a like capacity and in a similar situation. Defined Benefit Plan - ✔✔ Provides for a guaranteed benefit at retirement using a formula generally based on age, length of service and salary. Defined Contribution Plan - ✔✔ Provides for benefits based on the assets available in employees' individual accounts. Defined Benefit Plan - Employer Perspective - ✔✔ "Funding Certainty: Liabi lities change based on actuarial assumptions regarding future salary increases, investment earnings, employee turnover and plan experience. Predictable Costs: Annual contributions can vary from year to year based upon actuarial assumptions. Many plans are funded based on a consistent rate of contribution set by statute. Recruitment Tool: Typically not portable between employers, unless under same umbrella system (e.g. WRS). Reward Long -service Employees: Benefits typically based on final year(s) salary. Adm inistrative Expenses: Include actuarial valuation, record keeping and investment management. Investment Risk: Assumed by the employer." Defined Benefit Plan - Employee Perspective - ✔✔ "Benefit Potential: Benefits paid at retirement are for life and are gu aranteed by the plan's formula. COLAs are common. Understanding benefits: Require explanation as they are based on a set of variables. Typically, there are no separate accounts. Access to Assets while Employed: Benefits may not be withdrawn while actively employed. Reward long -service Employees: Based on final year(s) salary. Recruitment Tool: Benefits have limited portability Investment Risk: Risk is assumed by the employer." Defined Contribution Plan - Employer Perspective - ✔✔ Funding Certainty: Employer liability is fulfilled annually as contributions are made to employee accounts typically based on a percentage of payroll. Predictable Costs: Annual cash expenditures are more predictable as they are based on a set percentage of employee salaries. Recruit ment tool: benefits are portable Reward long service: Benefits are based upon accumulated contributions and earnings Admin Expenses: Lower, as no actuarial valuation is necessary. Employee education costs and recordkeeping may be higher. Investment Risk: A ssumbed by the employee." Defined Contribution Plan - Employee Perspective - ✔✔ "Benefit Potential: Based on contributions and earnings. The final retirement benefit can be eroded by pre -retirement distributions and inflation. Understanding benefits: Benef its based on a percentage of salary. No other variables need to be considered. Each individual has a separate account. Access to Assets while Employed: Benefits may be withdrawn under certain circumstances (e.g. loans, death, or disability) per IRS guideli nes. Rewards long -
service employees: Not really, based on accumulated earnings and contributions." Retirement plan funding objectives - ✔✔ 1. Maintain stable contribution rates 2. eliminate the unfunded accrued liability wihtin a certain time frame 3. Main tain inter -generational equity by not passing current costs on to future generations 4. Utilize techniques to hedge against unexpected adverse experience. Retirement plan funding methods - ✔✔ Level: produce contribution rates based on an even percentage of payroll. Graduated: funds benefits by increasing the percentage of payroll contribution over an individual's career. Unfunded Accrued Liability (UAL) - ✔✔ The excess of the total liabilities, both present and prospective, over the present assets and prese nt value of future normal costs. Closed Amortization - ✔✔ Financing the UAL over a specific number of years with the number of years declining as each year passes. Open Amortization - ✔✔ Number of years to pay off the UAL may remain constant from year -to-year. Three methods of valuing assets - ✔✔ 1. Book Value: Represents the cumulative actual cost of acquiring the assets. 2. Market Value: Values the assets at their sale price, producing the fluctuation in asset values. 3. Smoothed Market Value: Recognize o nly a portion (i.e. 20%) of the unrealized gains and
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller PatrickKaylian. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for £6.93. You're not tied to anything after your purchase.
