Deferred Group Annuity

Deferred Group Annuity Retirement Planning Pension Plans Annuities Income Payments Single-Premium Annuity
A deferred group annuity is a retirement income product where income payments start at a future date and continue for life, funded through annual contributions that purchase single-premium deferred annuities.
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Deferred Group Annuity

Definition: A deferred group annuity is a type of retirement income plan designed for employees, wherein regular income payments commence after a predetermined time period and continue throughout the retiree’s lifetime. Contributions are made each year to buy single-premium deferred annuities, and these increments cumulatively provide income payments when the employee retires.

Examples:

  1. Corporate Pension Plan: A company offers a deferred group annuity as part of its pension plan, where it makes yearly contributions on behalf of its employees. By the time employees retire, these deferred annuities provide a steady income stream.
  2. Union Retirement Fund: A union sets up a deferred group annuity for its members, with regular contributions made from the union dues. Members receive lifetime income payments upon retirement based on the cumulative annuities accrued.
  3. Public Sector Retirement: A city government provides a deferred group annuity for its employees as part of their retirement benefits, where payments begin after a specific future date and continue for the lifetime of the retirees.

Frequently Asked Questions:

  1. What is a deferred group annuity? A deferred group annuity is a retirement product where contributions buy single-premium deferred annuities each year, which then provide income payments starting at a future date.

  2. Who contributes to the deferred group annuity? Typically, the employer or organization contributes to the annuity on behalf of the employees.

  3. When do income payments begin? Income payments start after a stipulated future time period, typically at retirement age.

  4. How long do the income payments continue? Income payments continue throughout the retiree’s lifetime.

  5. Can employees contribute to their deferred group annuity? Depending on the plan specifics, employees might be able to make additional contributions to their deferred group annuity.

  6. Is the income from a deferred group annuity taxed? Generally, the income received from a deferred group annuity is subject to income tax when payments are received.

  7. Can a deferred group annuity be rolled over? Usually, deferred group annuities are structured to be non-transferable; however, specific provisions depend on the plan.

  8. What happens if an employee leaves the company? The treatment of the accrued deferred annuities upon leaving the company can vary; many plans have vesting provisions or allow for partial or full vested benefits.

Related Terms:

  1. Immediate Annuity: An annuity that begins making payments almost immediately after a lump sum is paid.
  2. Single-Premium Deferred Annuity: A deferred annuity funded by a single lump-sum payment, with income payments starting at a future date.
  3. Vesting: The process through which an employee earns rights to employer-contributed benefits over time.
  4. Pension Plan: A retirement plan that offers guaranteed income payments to retirees, often funded by employer contributions.

Online Resources:

Suggested Books for Further Studies:

  1. Annuities for Dummies by Kerry Pechter
  2. The Annuity Advisor by Michael Kitces and John Olsen
  3. Understanding Retirement Plans by James C. Kearney
  4. Retirement Income Planning: The Baby Boomer’s 2020 Guide to Maximize Your Retirement Income by Mark J. Orr

Fundamentals of Deferred Group Annuity: Insurance Basics Quiz

### What is a deferred group annuity? - [ ] A short-term savings plan. - [x] A retirement income plan providing future income payments. - [ ] A risk-free investment. - [ ] A type of real estate fund. > **Explanation:** A deferred group annuity is a retirement income plan where income payments start at a future date and continue for life, funded through annual contributions that purchase single-premium deferred annuities. ### When do income payments from a deferred group annuity typically start? - [ ] Upon reaching age 50. - [ ] Immediately after enrollment. - [x] After a stipulated future time period, usually at retirement - [ ] Once a certain savings threshold is met. > **Explanation:** Income payments from a deferred group annuity start at a stipulated future time period, often coinciding with the participant's retirement. ### Who generally contributes to the deferred group annuity? - [x] The employer or organization - [ ] Only the employee - [ ] Third-party financial advisors - [ ] The government > **Explanation:** Typically, the employer or organization makes contributions on behalf of the employee to the deferred group annuity. ### What type of annuity is purchased each year with a deferred group annuity? - [ ] Immediate annuity - [x] Single-premium deferred annuity - [ ] Variable annuity - [ ] Fixed indexed annuity > **Explanation:** Each year, contributions are used to buy a single-premium deferred annuity, which eventually provides income payments at retirement. ### Are income payments from a deferred group annuity taxable? - [x] Yes, upon receipt. - [ ] No, they are tax-exempt. - [ ] Only if the total exceeds $50,000. - [ ] Taxation varies by state. > **Explanation:** Generally, income payments from a deferred group annuity are subject to income tax when received. ### Can employees also contribute to the deferred group annuity? - [ ] No, only employers can contribute. - [x] Yes, in some plans employees can make additional contributions. - [ ] Only after 10 years of employment. - [ ] Employee contributions are always mandatory. > **Explanation:** Depending on the specific plan provisions, employees might be able to make additional contributions to their deferred group annuities. ### Which of the following is a characteristic of a deferred group annuity? - [x] Provides lifetime income payments - [ ] Payment is within one year of investment - [ ] Contributions are made only once - [ ] Only option for retirement savings > **Explanation:** A key characteristic of a deferred group annuity is that it provides lifetime income payments starting at a future date. ### What happens to the deferred group annuity if an employee leaves the company? - [ ] Automatically forfeits all benefits - [x] It depends on the plan specifics, such as vesting provisions - [ ] Transforms into an immediate annuity - [ ] Benefits are transferred to the new employer > **Explanation:** The treatment of accrued deferred annuities can vary depending on the plan, including vesting provisions or partial benefits. ### What aspect of the deferred group annuity determines income payment amounts? - [ ] The employee's job title - [ ] The performance of stock markets - [ ] The cost of living adjustment - [x] Accumulated single-premium deferred annuities > **Explanation:** The income payment amounts are based on the accumulation of single-premium deferred annuities purchased over time. ### How long do the income payments from a deferred group annuity last? - [x] For the lifetime of the retiree - [ ] Until the initial investment runs out - [ ] For a maximum of 10 years - [ ] For a set number of months > **Explanation:** Income payments from a deferred group annuity typically continue for the retiree's lifetime.

Thank you for exploring the detailed aspects of deferred group annuities through our thorough explanation and engaging quiz. Keep enriching your knowledge about retirement planning and stay financially informed!

Wednesday, August 7, 2024
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