Question

Ross, age 75, works for Financial Strategies, Inc. The company has a long-established retirement plan. The plan has never required an actuary or Pension Benefit Guaranty Corporation (PBGC) insurance, but the employer is required to make annual mandatory contributions to each employee's account. What type of retirement plan was established by Financial Strategies?

Answer 1

Financial Strategies, Inc. has likely established a defined contribution plan for Ross, which does not require an actuary or PBGC insurance, and where employer contributions are mandatory on a regular basis.

Step-by-step explanation:

The type of retirement plan established by Financial Strategies, Inc. for Ross, who is 75 years old, appears to be a "defined contribution" plan. This type of plan is known for having mandatory contributions made by the employer on a regular basis, without the need for an actuary or Pension Benefit Guaranty Corporation (PBGC) insurance. Such plans include 401(k)s and 403(b)s, where the employer contributes a fixed amount to the employee's retirement account every paycheck, and the contributions are tax-deferred.

These defined contribution plans have largely replaced the older pension and defined benefit plans, offering key advantages such as portability and potential tax benefits. The employee often contributes as well, and the funds can be invested in a variety of investment vehicles, with the aim of generating returns that counteract the effects of inflation in retirement.