What types of retirement funds are offered by federal and state governments? How have these changed...

What types of retirement funds are offered by federal and state governments? How have these changed over time?
Why do you think that we have more types of these now?

Expert Solution

ANSWER:

They are covers two types of retirement plans: defined benefit plans and defined contribution plans.

A defined benefit plan promises a specified monthly benefit at retirement. The plan may state this promised benefit as an exact dollar amount, such as $100 per month at retirement. Or, more commonly, it may calculate a benefit through a plan formula that considers such factors as salary and service - for example, 1 percent of average salary for the last 5 years of employment for every year of service with an employer. The benefits in most traditional defined benefit plans are protected, within certain limitations, by federal insurance provided through the Pension Benefit Guaranty Corporation (PBGC).

A defined contribution plan, on the other hand, does not promise a specific amount of benefits at retirement. In these plans, the employee or the employer (or both) contribute to the employee's individual account under the plan, sometimes at a set rate, such as 5 percent of earnings annually. These contributions generally are invested on the employee's behalf. The employee will ultimately receive the balance in their account, which is based on contributions plus or minus investment gains or losses. The value of the account will fluctuate due to the changes in the value of the investments. Examples of defined contribution plans include 401(k) plans, 403(b) plans, employee stock ownership plans, and profit-sharing plans.

Different Types of Retirement Accounts

Traditional Individual Retirement Arrangements (IRAs) ...
Roth IRAs. ...
401(k) Plans. ...
SIMPLE IRA Plans (Savings Incentive Match Plans for Employees) ...
SEP Plans (Simplified Employee Pension) ...
Payroll Deduction IRAs. ...
Defined Benefit Plans. ...
Employee Stock Ownership Plans (ESOPs)

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