A plan sponsor is an entity that creates the funds that are used for the eventual payment of pension’s plans
In a defined- benefit plan, The payments are made on a monthly basis, because the plan sponsor agreed to make specified dollar payments annually to qualifying employees starting at retirement. The pension obligations are debt obligations of the plan sponsor whereas in a defined- contribution plan is responsible only for making the payments to the employee after retirement. The amount contributed is the employee’s obligation either from his salary of his profits.
Some corporations have frozen their defined- benefits plans because they view it as too costly thus making them less competitive in the market against their competitor. In addition, there is the problem of managing the assets to be able to satisfy the liabilities and the implications for financial reporting.
A cash balance plan is a defined- pension plan under which an employer credits a participant’s account with a set percentage of his or her yearly compensation plus interest charges. A cash balance plan resembles a defined- contribution plan (money purchase plans and profit sharing plans) in which the employer contributes at a fixed rate but does not guarantee benefits.
Mutual funds play different roles in 401(K) plans, they include;-
· They can be used for future investments after retirement.
· They bring stocks together to create ease when leasing funds
· They help in catering for more incentive programs and pension schemes
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