Retirement Pension Plans

The old private pension system was created in the 1920’s and expanded throughout the 30’s and 40’s (McDonnell). Private pensions were considered one of the three income sources for retired elderly. Originally, private pensions had defined benefits. The employer and employee would agree to a percentage of salary that the employee would receive from the company annually during retirement. Contractually obligated, this placed the liability onto the employer. Estimates say that employees could receive around 40% of their last year’s salary as annual income with defined benefits. In the 1990’s, the pension plans gradually changed from defined benefits to defined contribution. The employees, rather than negotiating retirement salary now determine the amount of their salary that will be saved in a retirement fund. Retirement income is a burden on the employee rather than employer (Ghilarducci 8). In order to equal the income of the old plans, employees give their retirement savings to mutual funds that invest in the stock market. While a key aspect of retirement, the system has evolved like most economic institutions, favoring the wealthy and established. Furthermore, the private pension system contributes to a market bubble, putting money into the stock market regardless of market strength. These two problems cause the modern pension system to be flawed and unstable. The program must undergo drastic reform in order to save private pensions.

There are several different types of employment compensation. Salaries and wages that people earn while they are working provide immediate compensation for services provided and are a key factor in managing one’s day to day life. However, there are also various types of compensation that one can earn from employment after they have retired from a company. The purpose of these post-retirement benefits is to ensure livelihood for a person when they are no longer able to work. A pension is one such plan.

Defined contribution plans are financed by the employee, with the employer matching contribution to a certain amount. The most well-known type of defined contribution plan is a 401K plan. Defined benefit plans are based on the employee’s salary and years of service. The common type of defined benefit plan is known as pension. Each plan has its own benefits and disadvantages.

Companies have the option of selecting the best pension plan for both the employee and the employer. There are several different types to plans available, but the most common are defined benefit plans and defined contribution plans. Each plan offers different incentives for both the employer and the employee, which makes their values different for every situation.

Pensions are company-sponsored funds aimed to provide a firm’s employees income after retirement but are not offered by all employers. With the uncertainty of the future of the Social Security program in the United States and its inadequate benefits for many, a lot of people find themselves having to rely on their own savings to prepare for income beyond retirement through savings and retirement accounts such as 401(k)s and IRAs. In order to lessen the burden of finding their own source of post-retirement income, employees need to consider not only wages and other current benefits when choosing between employment opportunities, but should also consider post-retirement benefits such as pensions and healthcare when calculating total compensation. From a company’s perspective, firm-sponsored pension plans and other post-retirement benefits are additional ways to attract employees and retain them, reducing costs associated with turnover and being able to keep talent within the company. In response to the implementation of post-retirement benefit plans, standards were established outlining the guidelines for accounting in US GAAP and IFRS. However, different accounting issues exist with regards to pensions that are due to different causes.

Retirement security is a very broad term that refers to the confidence a person has in their economic resources to support them through the end of their life at a standard of living consistent to what they enjoyed prior to retirement. For most people, retirement income will come from personal savings and investments, Individual Retirement Accounts (IRAs), Social Security, defined benefit plans, and defined contribution plans (Retirementresourcesusa.com, 2016). Employers have traditionally played an integral role in the U.S. retirement system, offering either a defined benefit (DB) plan or defined contribution (DC) plan as part of their employee’s benefits package. A DB plan is not voluntary and uses a formula that credits every year of

Another of the concerns that Louis, Joyce, and Bryan have is they would like a retirement program that will shelter a substantial portion of their income from taxes. Of the myriad of choices, a company has for retirement plans, the best tax shelter for the owners is the qualified retirement plan. With the qualified retirement plan Louis, Joyce, and Bryan would be able to eliminate any current tax hit on a substantial portion of their income and be able to grow tax-free in a trust that they manage.

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An example of a type of retirement plan is, the EBRI. They have been conducting Research since it’s founding in 1978. Funding, Capital Markets, Program Coverage, and Participation in income adequacy is a tool used for Retirement Plans. There are many different types of Retirement Plans. Such as Defined Benefit Plans, Defined Contribution and Participant Behavior Programs, and Individual Accounts. There are even ways to protect your plan. Such as Retirement Security Projection Model. Which is used to model the expected income derived from such things as Social Security, Gender, and Family Status.

Companies and government entities enable employees to prepare for future retirement by offering employees a variety of retirement options. Retirement options are broken into two categories: defined benefit plans and defined contributed plans. Defined benefit plans include pension plans, which allow employees to receive guaranteed payments calculated by focusing on the number of years of job commitment and average yearly salary. Additionally, the employer takes on the investment risk instead of the employee. Contributions by any of the parties are optional, however, contributions are mandatory for defined contribution plans. Popular examples include 401(k) or 403(b) plans, which employees can elect to include a portion of a paycheck to the plan as a contribution twice a month (Defined Benefit Plan 2016) (Defined Contribution Plan 2016).

McKinsey & Co. performed a financial survey constituting 12000 households that show 83% of the Canadians are well able to maintain their standard of living even after they stop working. The survey consisted of 9000 working households, and 3000 retired households. The survey shows the advantages of traditional defined benefit (DB) pension plans which allows a guaranteed level of income in retirement showing that 91% percent of mid to high income Canadians with a DB plan are well on track to maintain their previous standard of living.

Within the concept of pension plans fall two different types of pension plans: defined contribution pension plans

Values of the plan. A defined benefit plan (DB) allows the employee to know exactly how much money they will receive during their retirement years. In the article Defined benefit pension decline: The consequences for organizations and employees the authors state the total gained from the plan defined and obvious. The employer agrees to

News about reversing Old Age Security eligible age back to 65 and including this in Liberal’s first budget which is announced by Prime Minister recently, has been intensively debated (Harris, 2016). This also raises people’s concerns about retirement pension fund defined as investment plan or fund that provide employees with a certain amount of income during their retirement (Morley, 2012). Reversing retiring age is a controversial policy because it has two sides. Retiring earlier means that employees can start enjoying their rest of life earlier, whereas, in the meanwhile, they need more money to cover their living spending during their longer retirement period. Typically, both employees and employers contribute a certain amount of money

Discussing the objectives of pension policy is important since these goals play a major role in determining the nature of old age income security, which in turn has implications for the elderly, and arguably, society as a whole. Hills (2015) focuses on the redistributive objectives of the welfare state and pensions. By collecting contributions from affluent groups in society, pension systems can aim to alleviate poverty by vertically redistributing income and wealth to the poorer pensioners (Hinrichs & Lynch, 2010; Barr & Diamond 2006).