Jeffrey L. Offhaus
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Audit Requirements and ResponsibilitiesLimited-Scope AuditsDefined Benefit Pension PlansDefined Contribution Pension Plans Health and Welfare Benefit Plans
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"Employee benefit plans are regulated entities and, as such, certain special audit requirements and responsibilities generally apply."

About Defined Benefit Pension Plans

Defined benefit pension plans provide a promise to pay to participants specified benefits that are determinable and are based on such factors as age, years of service, and compensation.

Defined benefit pension plans may be single employer or multiemployer plans, In addition, these plans may be funded through accumulated contributions and investment income (self-funded plans), insurance contracts (insured plans), or a combination of both (split-funded plans). Contributions may be required from both employers and participants (contributory plans) or from employers only (noncontributory plans).

Traditional defined benefit pension plans provide benefits that are defined in terms of a percentage of final average compensation or career average compensation, or as a flat dollar benefit per year of service.

Types of Defined Benefit Pension Plans

Traditional defined benefit pension plans provide benefits that are defined in terms of a percentage of final average compensation or career average compensation, or as a flat dollar benefit per year of service.

Cash Balance Plans – A cash balance plan is a special form of career average compensation plan. Typically, a cash balance defined benefit pension plan maintains hypothetical accounts for participants. The employer credits participants’ accounts with a certain number of dollars each plan year, and promises earnings at a specified rate. Interest on the account balance is credited at a stated rate, which may be different from the plans actual rate of investment return.

Cash Balance Plans Primer PDF

Pension Equity Plans – A pension equity plan is a defined benefit pension plan that has many of the advantages of the cash balance plan, but the benefit formula is similar to a final pay program rather than a career average cash balance program. Under this arrangement, a participant is credited with points based on age, service or both. On termination of employment, a participant’s final average compensation is multiplied by his or her accumulated points to determine a hypothetical account balance. This balance normally may be distributed as a lump sum or converted to an annuity.