Question

taxpayers who make after-tax contributions to qualified employer plan recover their investment (cost) when yhey begin to take periodic payment. How is the after-tax contributions recovered

Answer 1

The employer must estimate the total cost of the benefits promised and then allocate these costs to the periods in which the employees provide service. Most Defined Benifit pension plans are funded through a separate legal entity, typically a pension trust, and the assets of the trust are used to make the payments to retirees. The Pension Trust make investment of the contribution to meet the pension obligation in the stock,Bond market,real estate and commodity market knows as Plan Asset. The sponsoring company is responsible for making contributions to the plan. The company also must ensure that there are sufficient assets in the plan to pay the ultimate benefits promised to plan participants. Regulatory requirements usually specify minimum funding levels for Defined Benifit pension plans, but those requirements vary by country.Because the company has promised a defined amount of benefit to the employees, it is obligated to make those pension payments when they are due regardless of whether the pension plan assets generate sufficient returns to provide the benefits. In other words, the company bears the investment risk.