In defined contribution plans, the benefits of retired employees depend on contributions made to their accounts, irrespective to his/her length of the services or earnings. This type of account retains a certain balance level at a given time which is equal to the market value of asset accumulated in the account.
Unlike defined benefit plan, where employees have considerable control on their own plan with respect to how contributions are made. They can choose from different stocks like company stocks, bonds, mutual funds and other investment options such as 401(K), 403(b) and 457 plans.
Who has rights to terminate defined contribution plans?
Company can only terminate defined contribution plans in situations when there are certain changes in the company like a merger, bankruptcy, reorganization, sale and closure. If company experiences no such change, the employees can also terminate a plan.
This is impossible in the following conditions;
- No section of agreement allows the employer to terminate the plan
- The plan becomes obligatory under decree with no provision permitting employer to terminate the plan.
A pension plan can be terminated by the Regie, giving the administrator a notice, under following circumstances.
- Plan has no active members
- An employer doesn’t collect contributions properly
- Administrator or its delegate or any other party in the plan doesn’t comply with any of the orders issued by Regie.
How is a defined contribution plan terminated?
As soon as termination is decided, its administrator, beneficiaries and members will be informed. After this, the administrator performs a particular process within fixed time to liquidate funds. The time is at least four months.
If there is a deficit, like employer owing funds or administrator fails to recover the funds because of bankruptcy, it results in reduction of benefits received by the beneficiary or members of the plan. If employer gets bankrupted and any unpaid expenses or plans are to paid to him/her, these expenses will be deducted from the account of the plan.
On termination, if there are any surplus assets, the stakeholders will receive consultation with respect to how the surplus may be allocated between employer and them until the employer has already decided to permit the entire amount. This is usually the reason for making and agreement.
Every year the Life Insurance Marketing Research Association (LIMRA) teams up with Life Happens to conduct their Life Insurance Barometer Study. The annual study aims to help life insurance companies, financial advisors, and broker-dealer firms understand the state of life insurance in the U.S. Year after year, the study shows that Americans are not taking advantage of life insurance as they should.
As a financial advisor, how do you reconcile the fact that some 84% of Americans agree that most people need life insurance yet 70% said they did not need it themselves? How do you approach those clients that are part of the 41% of Americans with no life insurance, or the more than 30% whose life insurance is limited to a basic group policy?
You know how important life insurance is. You know that life insurance is an integral part of both financial and retirement planning. Perhaps all you need is a solid strategy for discussing life insurance with your clients in a way that helps them understand their need without scaring them away.
Single vs. Married with Family
The first hurdle to overcome is the difference between buying life insurance as a single person and buying it as someone who is married, with or without children. The average single person does not tend to think about life insurance because there is no one to provide for in the event of death. Yet there are burial costs that still have to be covered. If nothing else, single people need to think about basic life insurance to take care of those costs. Leaving siblings and parents with the bill is just not the right thing to do.
There is another way to approach single people above and beyond talking about funeral costs. You can approach them from the standpoint of eventually having family to protect. Investing in a whole life insurance policy now will put life insurance in place should the individual eventually marry and have children. And if not, the investment value of a whole life policy can be valuable in retirement. Any death benefits paid out can be distributed among family members, friends, or even charitable organizations.
As for those clients that are already married, income protection is a big talking point. Life insurance for married people covers both funeral costs and a certain amount of income for a given period of time. In a day and age in which two income households are the norm, income replacement is important.
Western International Securities suggests some additional talking points for life insurance discussions:
- Housing expenses (mortgage payments, rent, etc.)
- Paying off debt (including credit cards, personal loans, etc.)
- Education costs for minor children
- Estate settlement costs
- Benefits left to surviving family members.
More Than Funeral Insurance
Another very helpful way to approach life insurance is to differentiate it from funeral insurance. Unfortunately, funeral insurance has become a big business in America as far too many older adults fail to secure life insurance in their younger years. By the time they come to the realization that there will be costs associated with their passing, they are left to purchase low-cost funeral insurance policies that do not offer much value.
Life insurance is about more than covering the cost of burial. It is about providing additional benefits that will help survivors get through a time of bereavement without having to worry about income. It is about being able to pass on some sort of financial legacy to children and grandchildren by making some of the client’s accumulated wealth transferrable at the time of passing.