11/23/2018
1. Defined benefit plan
2. Defined contribution plan
Chapter 29. Mini Case for Pension Plan Management
a. How important are retirement plans to the U. S. financial markets? See PowerPoint Show.
b. Define the following pension fund terms: See PowerPoint Show.
Southeast Tile Distributors Inc. is a building tile wholesaler that originated in Atlanta but is now considering expansion
throughout the region to take advantage of continued strong population growth. The company has been a “mom and pop”
operation supplemented by part-time workers, so it currently has no corporate retirement plan. However, the firm’s owner,
Andy Johnson, believes that it will be necessary to start a corporate pension plan to attract the quality employees needed to
make the expansion succeed. Andy has asked you, a recent business school graduate who has just joined the firm, to learn
all that you can about pension funds, and then prepare a briefing paper on the subject. To help you get started, he sketched
out the following questions:
c. What two organizations provide guidelines for reporting pension fund activities to stockholders? Describe
briefly how pension fund data are reported in a firm’s financial statements. (Hint: consider both defined
contribution and defined benefit plans.) See PowerPoint Show.
3. Profit sharing plan
4. Cash balance plan
6. Portability
Interest rate: 10%
Number of years: 15
Annual pension payment: $20,000
I. What is meant by “tapping” pension fund assets? Why is this action so controversial? See PowerPoint Show.
3. Employee training costs? See PowerPoint Show.
f. How does the type of pension plan influence decisions in each of the following areas:
1. The possibility of age discrimination in hiring? See PowerPoint Show.
e. Discuss the risks to both the plan sponsor and plan beneficiaries under the four types of pension plans. See PowerPoint Show.
The employee will draw an annual pension (an annuity) of $20,000 for 15 years. Thus, the firm must accumulate
$152,121.59 in the pension plan by the time the employee retires to fully fund the retirement:
2. The possibility of sex discrimination in hiring? See PowerPoint Show.
Since the company has 40 years to accumulate this amount, its annual pension contribution is:
Interest rate: 10%
Number of years: 40
Required amount: $152,122