...examine current trends in the most commonly defined contribution retirement plan, the 401(k) plan. It will outline the best course of action to achieve an effective plan and maximize employee participation. This paper will review current mandates regulated by government agencies and explain the importance of remaining in compliance. Finally, the paper discusses best practices for implementation, as well as the best ways to promote a 401(k) plan within your organization. Throughout the process the details of the 401(k) plan at Tampa Bay & Company, a small sized organization, will be compared to other non-governmental company 401(k) plans to highlight specific examples and draw comparisons. Overall 401(k) Trends In response to the economic downturn there has been an increasing surge of employers who are lowering benefits associated with 401(k) plans. The most common trends are employers reducing the amount of match, reducing the portion of the match, or eliminating the match altogether. Over the past couple of years several surveys have been completed by investment firms, revealing that the number of employers who have decreased company contributions is on the rise. Some surveys show as low as a 7% decrease, but the majority of surveys claim that the amount is closer to 25% of employers who decreased matches or ceased employee contributions all together. Nearly two-thirds of employers still continue to provide matching contributions. This is astonishing, considering that 75%...
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...2011 Technical Summary IAS 19 Employee Benefits as issued at 1 January 2011. Includes IFRSs with an effective date after 1 January 2011 but not the IFRSs they will replace. This extract has been prepared by IFRS Foundation staff and has not been approved by the IASB. For the requirements reference must be made to International Financial Reporting Standards. Employee benefits are all forms of consideration given by an entity in exchange for service rendered by employees. The objective of this Standard is to prescribe the accounting and disclosure for employee benefits. The Standard requires an entity to recognise: (a) a liability when an employee has provided service in exchange for employee benefits to be paid in the future; and (b) an expense when the entity consumes the economic benefit arising from service provided by an employee in exchange for employee benefits. This Standard shall be applied by an employer in accounting for all employee benefits, except those to which IFRS 2 Share-based Payment applies. Short-term employee benefits Short-term employee benefits are employee benefits (other than termination benefits) that are due to be settled within twelve months after the end of the period in which the employees render the related service. When an employee has rendered service to an entity during an accounting period, the entity shall recognise the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service: (a) as a liability...
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...cost - performance rating of manager's subordinates - employee's own performance rating - area of functional responsibility 3. Which of the following statements is least descriptive of why many suggestion plans have failed? Student Answer: - employee apathy - failure to recognize contributions - management lacks interest - union members block suggestions through committee action 4. Which one of the following is not a benefit to the employer when offering an ESOP? Student Answer: - maintains a stable work force - owner can sell stock to a friend - results in a dilution of value of the stock - ESOT can borrow money under favorable conditions 5. In contrast to compensation systems in the private sector, those for government employees are less likely to include use of Student Answer: - wage surveys - job descriptions - job evaluation - financial incentives 6. Which one of the following statements is not true regarding a defined contribution plan? Student Answer: - most pension plans are defined contribution plans - crucial to a defined contribution plan are investment and management skills - employers assume the investment risk - most plans have less than 100 participants 7. Which of the following is not true about a well-designed incentive scheme? Student An...
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...Pension Plans vs. Contribution Plans A retirement plan is a savings and investment plan that provides income during retirement. Many times it is created by employers for employees. However, many people do not know the difference between a pension plan and a contribution plan. For example, they may believe that a 401K is their pension plan when in reality it is a contribution plan. Therefore, one should first learn to define what a pension plan is and what a contribution plan is. A defined benefit plan, also known as a pension plan, and a defined contribution plan, a 401K or 403B are just two main types of employer retirement plans. A defined benefit is a plan that pays you a specific amount of money monthly or in a lump sum, when you retire as part of your retirement benefits. This plan focuses on output and the benefits may not depend upon the amount of an account balance. (Kennedy & Shultz III – 2012) The amount issued are usually based on formulas and on criteria such as number of years worked at a company and salary earned. For the most part the employer pays the complete cost of a pension plan or defined benefit thus the investment risk rest with the employer. Let’s first consider the details of the defined benefit plan. According to Lewis and Clark (2009) “Participants of a defined benefit plans are promised a specified sum regardless of the investment of the plan.” This type of benefit is designed to replace all of the participants’ pre-retirement income...
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...Welfare Benefit Plans Kayla Helms Abstract Health and welfare benefit plans include many types of plans. These different plans can fall under one if two categories: defined benefit plans and defined contribution plans. These plans differ in how contributions to the plans are made. Overall Employee benefit plans can be separated into three different topics. These topics are: defined benefit pension plans, defined contribution pension plans, and health and welfare benefit plans. There are different rules for accounting for each different type of plan. This paper will focus in accounting for health and welfare benefit plans, specifically presentation of financial statements. Health and welfare benefit plans include plans that provide any of the following: 1) Any of the following: a) Medical, dental, visual, psychiatric, or long-term health care b) Life insurance (separate from a pension plan) c) Certain severance benefits d) Accidental death or dismemberment benefits 2) Benefits for unemployment, disability, vacations, or holidays 3) Other benefits, such as apprenticeships, tuition assistance, day care, dependent care, housing subsides, or legal services.(ASC 965-10) Health and welfare plans can also be divided into two subtopics: defined benefit health and welfare plans and defined contribution health and welfare plans, Defined benefit health and welfare plans specify a determinable benefit. In the private sector, defined benefit plans...
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...Pension Plans and Eliminating Segments This memo is to provide a response to the new CEO who is requesting information regarding the following areas. The first discussion is and explanation of the required reporting on retirement plans that includes defined contribution, defined benefit, and other postretirement plans. The memo will also include what may happen when two segments are to be eliminated. Defined Contribution Plan A defined contribution plan is when an employer puts aside a certain percentage periodically to the employees benefit plan. There are two types of defined contribution plan: Defined contribution health and welfare plans— This plan is an account for the employee that calculates the amount by using the participating employee’s account instead of his or her benefits. “The benefits a plan participant will receive are limited to the amount contributed to the participant's account, investment experience, expenses, and any forfeitures allocated to the participant's account. These plans also include flexible spending arrangements. (FASB ASC 715-70-20)” Defined contribution postretirement plan— A participant that uses this plan is provided an individual plan that is determined by the amount of services he or she has rendered. “Under a defined contribution postretirement plan, the benefits a plan participant will receive depend solely on the amount contributed to the plan participant's account, the returns earned on investments of those contributions, and the...
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...ACCT 530 Tax-Advantaged Retirement Plans April 30, 2014 An important part of tax planning includes planning for retirement. There are many different types of plans available, some with immediate tax benefits and others with deferred benefits. Effective retirement planning should begin as early as possible; and continue through the remaining work life expectancy. The ability to save for retirement as well as the timing and risk of investments factor into which retirement plan(s) an individual should utilize. This review will analyze various types of plans and include the prevalence of these plans, as well as the tax savings or cost to the federal government. There are several major sources of retirement income for the retired, including Social Security, employment based pensions and annuities, part-time work, and personal savings and investment. According to the Employee Benefit Research Institute, nearly 90% of all retirees receive some type of benefits from Old Age, Survivors and Disability Insurance (OASDI), or Social Security. This is the largest source of income and accounts for 40% of all income during retirement. These benefits are extremely important for the lower income population, who rely on Social Security for nearly 90% of their income. In fact, 21% of retirees rely solely on these benefits. The highest income population relies more heavily on earnings, with Social Security, pensions, and investments accounting for approximately 20% each of their remaining...
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...Subject: Pension Plan Disclosure and Reporting Requirement CC: This brief memo will address the topic of Pension Plans. Specifically, it shall discuss the two basic types of pension plans and the other postretirement plan. Then it shall examine the purpose of pension plan reporting requirements, their effect on the financial statements, and the significance of each type of pension plan. It will also examine the positive and negative implications of each of the pension plans. Defined Benefit Pension Plan - A defined benefit plan is a retirement plan set up to pay a fixed annual amount to eligible employees during their retirement. It is called defined benefit because the quarterly or annual contribution is based upon an actuarial determination of what the participants' retirement benefits should be, not on profits. The formulas look at how much money must be contributed in order for there to be enough money to pay a FIXED amount of benefit(s) to recipients in the future. These projections use a reasonable expected rate of return (401kpsp.com, 2012). Defined Contribution Plan- A defined contribution plan is a retirement plan that requires that an individual "account" be set up for each participant in the plan. It is called "defined contribution" because a participant can only contribute a fixed maximum amount to the plan each year. The contributions are not based on the expected retirement benefit, but rather on a percentage that is specified in the plan (401kpsp.com,...
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...Pensions As you may know there are two types of pension plans that are most commonly used: a defined contribution plan and a defined benefit plan. “A defined contribution plan sets forth a certain amount that the employer is to contribute to the plan each period (Schroeder, Clark, & Cathey, "Pensions and Other Postretirement Benefits," 2011). “A defined benefit plan specifies the amount of pension benefits to be paid out to plan recipients in the future. Companies that use this plan must make sufficient contributions to the funding agency in order to meet benefit requirements when they come due” (Schroeder, Clark, & Cathey, "Pensions and Other Postretirement Benefits," 2011). The defined contribution plan makes no promises on what the ultimate benefits are to be paid. “The benefits received by the recipients are determined by the return earned on the invested pension funds during the investment period” (Schroeder, Clark, & Cathey, "Pensions and Other Postretirement Benefits," 2011). When you account for this plan the risk for future benefit is the employee and the employer’s only cash outflow is the annual contribution to the pension plan fund. “The pension expense is equal to the amount of promised annual contribution”(Schroeder, Clark, & Cathey, "Pensions and Other Postretirement Benefits," 2011). The financial statements should disclose the plan, what groups are covered, the basis for determining contributions, and any significant matters affecting...
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...Acquisition of Other Company, Pensions and Other Postretirement Plans Abstract Recently, Midsize Manufacturing Company acquired 100% of another company. Along with the acquisition, Midsize Manufacturing Company inherited the former company’s employee pension plans and other postretirement plans. In the following I will discuss the required reporting for defined contributions, defined benefits, and other postretirement benefits. I will also address how the former company’s segments shall be dissolved. Defined Contribution Plan vs Defined Benefit Plan First, Midsize Manufacturing Company must determine the type of pension plan that will be offered to the inherited employees. The employees from the former company experienced two differing pension plans. It is in the best interest of Midsize Manufacturing Company to select one plan moving forward. According to Schroeder, Clark, and Cathey (2011), the two most frequently encountered types of pension plans are defined contribution plans and defined benefit plans (p. 456). On one hand a defined contribution plan applies a set amount to the employee’s retirement per period. Often the employee will contribute a designated amount to the investment and the employer then has a match plan coinciding with the employee’s investment. Examples of defined contribution plans are 401(k) or 403(b). Defined contribution plans tend to be useful for small to midsize companies “since the risk for future benefits is borne by the...
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...Retirement Plan and Communication Proposal Ebony Brown HRM/324 January 24, 2012 Jocelyn Freimark The design of a company’s benefits program is important to ensure the plans fit the structure of the company and the needs of its employees. Being a new company starting with 150 employees it will be important to design a varied and comprehensive retirement program that will not only address the needs of the company’s current employees, but will also attract potential employees, and be affordable for the company. Qualified plans “entitle employers and employees to substantial tax benefits” (Martocchio, 2009, p. 3), because neither has to pay taxes on contributions within a dollar limit outside of defined contribution plans. As an additional benefit, investment earnings are tax free and participants and their beneficiaries do not pay taxes on retirement benefits until the funds are received. There are two types of qualified retirement plans: defined benefit plan and defined compensation plan. A challenge of the defined benefit plan is that it may prove to be more costly for employers as employer contribution rates fluctuate yearly and requirements may be difficult for employers to ensure all the funds are available for participants or beneficiaries to receive. In this case, the best retirement benefit design option is the defined contribution plan. Under the defined contribution plans “employers and employees make annual contributions to separate...
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...with a pension plan for many years. Through the use of a funding agency, payments are invested so that periodic payments can be made to the employee during retirement. Defined contribution and defined benefit are the two most common type of pension plans. However, employers offer additional retirement benefits such as tuition assistance, healthcare, life insurance, and housing subsidies (Schroeder, Clark, & Cathey, 2011, p. 470) as guided by SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other than Pensions.” Each plan caries different risk and benefits for employer and employee. A brief summary is hereby provided to aid in deciding the appropriate plan for the company. Defined Contribution Defined contributions plans are rapidly becoming the preferred plan for most firms. The plan offers less risk to employers because employees make contribution towards retirement funds. Employees contribute a set percentage, taken from the salary, to the plan. Funds are invested into a plan such as a 401K or Thrift Savings Plan (TSP) for Federal employees. The amount the retiree receives is based on the return on investment at the receipt. That is, the benefits the recipients earn are based on the stability of the investment and the return earned on funds during the time of investment. The risk of the investment is borne by the employee as the market changes in value. The employer’s responsibility is the “annual contribution to the pension plan fund” (Schroeder...
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...The acquisition of 100% of another company has resulted in research pertaining to pension plans and segments. Such research has focused on the reporting of defined contribution and benefit plans, and other post-retirement plans offered by the acquired company. In addition, research pertaining to eliminating two segments has been analyzed. Research that adheres to both the Financial Accounting Standards Board (FASB) and the generally accepted accounting principles (GAAP) guidelines has been assessed. As a result, recording guidelines for pension plans, and the process of eliminating segments within accounting, have been provided for further consideration by the company. Defined Contributions Plans Defined contributions plans require the company to allocate funds to employee retirement plans. The contribution amount for each employee who partakes in this type of retirement plan is dependent on the plan requirements; however, “after a minimum vesting period, the funds become the property of the employee for their benefit once they enter retirement” (Walther, 2010, p. 162). The ASC 715-70-20 (IAS 19) recognize this type of plan as means for a company to provide benefits to an employee and the inclusion of the defined contribution plan within the company financial statements is relatively simple (FASB, 2009). The company contribution is recorded as a pension expense within the company income statement. The pension expense, once calculated, is a fixed figure, which is determined...
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...Proposed Retirement and Communication Plan HRM/324 October 28, 2013 Sharron Fletcher Proposed Retirement and Communication Plan Offering retirement benefits to employees to provide a source of income after they retire. Employees need to invest in their own retirement while working to ensure they have enough money to cover their expenses. The benefits of participating in these plans is tax-deferred earnings, and in some cases contributions are also taxed deferred. Employees can also invest in individual retirement accounts (IRAs) to augment their companies plan or to develop their own plan. "Companies establish retirement or pension plans following one of three design configurations: a defined benefit plan, a defined contribution plan, or hybrid plans that combine features of traditional defined benefit and defined contribution plans" (Martocchio, pg 259, 2009). Once the company decides on a plan, they need to develop a communication plan to encourage employee participation for the proposed retirement plan. "Setting up an employee retirement plan can be a smart way to provide for one of your key assets - your people - as well as benefiting one's business"("Nationwide", 2013). Providing a quality retirement plan helps attract and retain employees, reduce the tax burden and allows the owner to invest in their own retirement. Employers take care of their employees through salary, health...
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...Differences between defined-benefit and defined-contribution pension schemes and the trend in these two pension schemes This essay focuses on the differences between defined-benefit and defined-contribution pension schemes as well as alternative reasons why defined-contribution pension schemes are becoming more and more important. Defined-benefit and defined-contribution pension schemes are two basic types of pension schemes. (Clark & Melinda, 1999) Defined-benefit schemes promise a particular benefit at retirement whereas defined contribution schemes only prescribe rules of contribution saving into individual accounts. In general, the size of defined benefit pension is determined by the final salary and the length of service while the income of defined contribution pension scheme is based on the value of the fund at retirement. In the UK, Both employer and employee contributions to the pension schemes are tax-deductible, even though the pension itself is taxable. (Redhead, 2008) Defined-benefit schemes, also known as final-salary schemes, are typically provided by employers for their employees. The schemes promise to pay a specified level of income at retirement. The income is worked out according to the number of years in the scheme and the final salary at retirement. The schemes would provide the accrual rate, typically 1/60th or 1/80th. (Callaghan, et al., 2012) For example, a person’s salary at retirement was £24,000 and he has worked for 40 years until retiring...
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