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Retirement Savings Policy by Michael P. Barry

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Chapter 4 The Regulatory Framework—Benefit Insurance, Minimum Funding Rules and Accounting Standards Affecting DB Plan Finance

One way to think of a defined benefit plan is as an annuity company run by the employer-sponsor exclusively for its own employees. The employee is the beneficiary of the employer’s DB “life annuity promise,” and all the risks that an insurance company/annuity carrier undertakes when it sells a life annuity are, in a DB plan, borne by the plan sponsor.

The difference between an annuity purchased from an insurance company and the annuity provided by the employer’s DB plan—and the reason that, mid-20th century, DB plans became the primary means of providing corporate retirement benefits—is that, while insurance companies ...

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