Deferred Group Annuity

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:

• Investopedia - Annuities
• IRS - Retirement Plans FAQs
• AARP - Guide to Annuities

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

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