What is a Plan Asset?

Mary McMahon

A plan asset is a financial asset held in a retirement plan and used to generate income to fund the plan. Plan assets are usually mixed in nature with the goal of keeping a retirement plan diverse and limiting exposure to losses, especially when people are near retirement and are counting on access to income from the plan. Typically, an investment manager is charged with supervising the handling of the assets, applying knowledge about the financial industry to decisions about moving and using assets.

Plan assets are held within a retirement plan and are used to generate income that funds the plan.
Plan assets are held within a retirement plan and are used to generate income that funds the plan.

Examples of plan assets can include stocks, bonds, and mutual fund investments. Assets are selected on the basis of returning steady and reliable investments. In the case of an individual retirement plan, people tend to choose more risky investments at first to build up capital, switching to low risk investments with smaller returns as they get closer to retirement. This ensures the availability of funds when they will be needed, and provides space for rebuilding retirement savings if losses on a plan asset are incurred early in someone's career.

Retirement involves financial planning.
Retirement involves financial planning.

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Companies offering retirement benefits allow qualified employees to buy into the plan and may match employee contributions. Funds pooled in the plan are used by the investment manager to select good plan assets with the goal of keeping returns consistent. Employees currently in retirement must be funded out of the plan while employees who are currently working pay in with the expectation of receiving benefits when their working lives are over. This requires a delicate balance on the part of the investment manager when it comes to making plan asset purchases, especially if the number of people in retirement is expected to grow.

Accountants can assist people with keeping tax burdens low while preparing for retirement.
Accountants can assist people with keeping tax burdens low while preparing for retirement.

A plan asset is typically provided with special tax treatment. While it earns income and generates a profit, this is being used for a specific purpose, funding retirement, and tax authorities may reduce or eliminate tax obligations associated with such assets. This provides an incentive for saving for retirement, reducing the burden on government retirement programs by allowing people to plan their own retirements.

When setting up a retirement plan, there may be restrictions on what can be considered a plan asset, and there are also individual investment caps. Investing in non-qualified assets or contributing over the cap can create tax liabilities. Accountants have more information on retirement planning and current regulations and can assist people with the process of keeping tax burdens low while preparing for retirement.

Plan assets limit exposure to losses by keeping a retirement plan diverse.
Plan assets limit exposure to losses by keeping a retirement plan diverse.

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