Quiz 20: Insured Funding Instruments and Trust Fund Plans
Funding instrument Funding instrument include trusts, custodial accounts or insurance company contracts which should be part of qualified plan where the assets can be hold and accumulated. These funding instrument provide return for amount invested from pension plan. In case of insured funding arrangement and self-insured the fund of pension plans are invested by employer in various investment opportunities available. In case of trust fund arrangement the deposit made under pension plan are deposited with trustee. Trustee would therefore administer the fund and income earned on investment and at times make direct payment to beneficially. In order to decide between the two arrangements employer would consider the investment opportunity available with it and the trust it has on own its capability to manage the funds. If employer feels that it is lacking the required knowledge to manage the fund then it would appoint a trustee who would look after the entire amount deposited.
Pension Fund Instruments: These are the funding instruments used to fund the pension plan. They are trust, Insurance companies, Custodial Accounts). The Original pension fund instruments are the insurance companies. Later the trust is used as pension fund instruments. Following are the guarantees issued by the insurers when they are used as pension funding instruments: 1. A Single premium will be paid taken from the companies which will be used to purchase the annuities and they are useful to pay the pension amount in their retirement age. 2. The Insurance Company will pay the retirement benefits which will be equal to the amount accrued on is investment by the person invested till his retirement. 3. The risk and rewards are transferred to the insurance company.
Funding instrument Funding instrument include trusts, custodial accounts or insurance company contracts which should be part of qualified plan where the assets can be hold and accumulated. These funding instrument provide return for amount invested from pension plan. Before choosing the insured fund arrangement employer would consider the risk and return offered by each insured fund arrangement. Employer is responsible to manage the contribution made to pension fund and thus it needs to consider the risk each investment opportunities provide and the return offered by them. It would consider the current equity market situation, funds required by each fund arrangement before making a final decision for investment.