a. One of your employees comes to you, the benefits manager, and expresses her d

Question

a.         One of your employees comes to you, the benefits manager, and expresses her desire to withdraw a substantial portion of the vested funds she has accumulated in the qualified defined contribution plan that your company offers. What questions will you ask and what advice will you give?                                                  

b.         Assume the employee does withdraw all of the funds whether you say it is a good idea or not: $30,000 contributed by her and $15,000 contributed by the employer. The plan has a 3-7 vesting schedule. Ignoring only ordinary income tax, how much will the employee receive at distribution in each of the following circumstances?                                                                                                                  

1.The employee is 35 years old, has worked for you for 6 years and is leaving to take another job. She plans on rolling over her distribution to her new employer’s qualified plan immediately.                                   

2.The employee is 50 years old and in the midst of a mid-life crisis after working for you for 15 years. She quits and plans on taking her distribution to a tropical island where she will live until the money runs out.

3.The employee has worked for you for the last 10 years but is 63 years old and decides to retire early.

4.The employee has worked for you forever and never plans to retire. She is 72 years old and has a life expectancy of 15 years (according to the IRS).

Explanation / Answer

A.

While insurance is about protecting what you have, retirement and estate planning is about protecting what you may have in the future. Insuring what you have means finding the best way to protect it. Retirement planning, on the other hand, means finding the best way to protect the life that you’d like to be living after you stop earning income from employment. Estate planning involves protecting what you have even after your death. So retirement planning and estate planning are plans to create and then protect an accumulation of wealth.

Both types of planning also ask you to ask some of the following questions that you really can’t answer:

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