...Head: Pension Plans Abstract The goal of pension plans is to provide a fixed income for individuals during retirement. In practice, this means either paying employees a fixed income when they reach a predetermined retirement age or can no longer work due to disability (Dessler, 2005, p. 492). However, since the 1980’s the number of employers offering pension plans has declined. Once considered a common benefit in the workplace and motivator for senior employees to remain with the organization, private pension plans has drastically dropped 74 percent (Carrell & Heavrin, 2007, p. 329). This research paper will first explain how pension plans are classified and then identify several reasons why pension plans has declined. Moreover, it will discuss which pension plans are in use today, and finally, what regulations govern pension plans. Private Pension Plans: America’s Vanishing Benefit When one company after another reneges on its pension obligation toward current and future employees, you know it’s going to get ugly. Just ask any veteran employee of a major airline who may only receive half the value of his/her pension upon retirement. Walsh (2004) reported that United Airlines’ pension payment debt nearly topped $23.4 billion along with another $1 billion for retiree health care benefits (para. 11). In other words, pension payments have the potential to basically bankrupt an industry. How should companies challenge the rising cost of retirement without...
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...Pensions ACCT 302 Pensions help us live with an income as we get older and have retired. “A pension plan is a financial arrangement that allows individuals to continue receiving some type of regular income even after they are no longer active in the workforce.” (1) Most of the pension options out there are used when you retire however there are certain instances where you can collect a pension before retirement due to a disability. Pension plans are also interchangeable with retirement plans they are basically the same thing. Pensions are based on years of service and what has been put into them both by the employee and the employer over the years of service. There are also pensions offered by government so it is possible to have both pensions’ types. The types of pensions overseen by government are handled by the Social Security Administration. Then there are disability pensions to help people take care of themselves in the event that they become disabled and are not able to work. This is usually done through a medical professional who has to deem them incapable of work due to health reasons. The first pensions came in 1717 when the “Presbyterian Church created a fund for Pious Uses to provide for retired ministers.” (2) However it was not until 1875 that the first pension was created for the United States and it was by the American Express Company. Then it took till 1884 for the first major employer to catch on and it was by the Baltimore and Ohio Railroad. They...
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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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...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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...people’s pension, but that’s not the case. The title for the article is very misleading. According to the article State pension programs were funded up to 78%. Public pension is not in a state of turmoil. It is actually doing really well compared to some other publicly funded programs. Issues that had recently arose in places like New Jersey or Illinois, these places were giving the pension program a bad name for a while because their state was having an issue with public pensions. But truthfully the majority of programs like the pension program are no were near being in trouble. As our country is going through a recession, it takes a huge toll on our financial affairs for our state and our country. But the good thing is that publicly funded pension programs have many factors that help to aid in recovery if they need it. A few examples of things that put pension programs back in play: A pension that is underfunded is a huge problem and maybe a sign of a deeper problem. But about 78% of state pension programs are fully funded. Most experts say that time works in the favor of pension programs. They say this because the time and compounding interest will fix the losses that may occur. Public pension programs were greatly affected by the recession, but they have undergone a long recovery over the past few years. Researchers say that we are on the rise with healthy funding levels and it’s going to take a while to get back to normal but they are well on their way. Because pensions are...
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...Pension costs draining Miami C. Esquijarosa Master of Public Administration Capstone MMPA 6910, Section 2 Instructor Anne Hacker February 21, 2010 Table of Contents The City of Miami……....……………………..………………………………………………….1 The City of Miami vs. Gates Case………………………………………………………………..2 The retirement systems………………………...………………………………………………….2 The Research Question………..…………………………………………………………………..4 Stakeholders…………………………………...…………………………………………………..5 Ethical Issues…………………………..….………………………………………………………8 Data Gathering Methods….……………………………………………………………………..10 Data Analysis…….……………..………………………………………………………………..12 Conclusions and Recommendations.…………………………………………………………….13 Annotated Bibliography………………………………………………………………………… Pension costs draining Miami In 1896, the City of Miami (the “City”) became the first city to be incorporated in Miami-Dade County. It is the largest of 35 local municipalities within the County; has an estimated population of 404,048 people; and has a land area of 35 square miles (US Census Bureau, 2006). Miami employs 3,408 full-time positions and several hundred part-time positions (Miami, 2010, p.73). The City of Miami has three single-employer defined benefit pension plans: The City of Miami Firefighters’ and Police Officers’ Retirement Trust (FIPO); the City of Miami General Employees’ Retirement Trust (GESE); and the City of Miami Elected Officers’ Retirement Trust (EORT). With the exception of the EORT...
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...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. In a 1/60th scheme, he would receive a pension of: 1/60×£24...
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...Article Review: Pension Plans Benefits HRM 599 Devry University’s Keller Graduate School of Management October 7, 2013 Professor Brian Nisbet Yolanda M. Green Pension Plans The article entitled “Pension Plans” was written by Al Thomas, with means of informing workers of the different types of retirement plans that should be accessible by their employer. The article was also written to explain which of those plans are better for employees to choose from in order to maximize the amount of money that they will receive after retirement. During the time of this articles publishing, it appeared that some companies were using unreal rate of returns for projections of better profits (Pension Plans). The rest of this article review will give insight on the two different options that employees can choose from when deciding on retirement plans and how to be sure that each move after will help them achieve their main goals, which should be retirement savings. The article mentions the first type of pension plan that is available to employees, which is called the “Defined Contribution Plan”. Under this plan you will be able to put in any amount of money into your retirement plan and in return the company will match a certain percentage of that. During this week in our class discussions we talked a lot about employer match contribution amounts and if we thought that it was enough for someone to survive at retirement. A lot of classmates...
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...Pension plans offered at different organizations are different but typically follow one of two main types. The defined benefit plan and the defined contribution plan are the two main types of pension schemes. The focus is always on helping the people when they retire. The state of Florida could benefit from re-opening the defined benefit plan for the state employees. The organizations should focus on a plan and be forced to keep it open for employees as long as they are with that organization. These pension plans often become the subject of budget cuts to save the organizations money and the employees suffered because of it. The defined benefit plan had the potential to pay a specific amount of retirement income for life. It may be based on the formula that takes into account your salary and years of service with your organization. In most plans, both employee and employer contribute. The company is...
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...Date: October 25, 2010 Reference: Postretirement Plans Introduction Acquisition of a company leads to many changes in the company and especially in the area of the retirement benefit plans for our company. It is complicated adjusting to benefits plans but with the required reporting, the transition will be smooth. The different types of pension plans we will focus on are; defined contribution, defined benefit, and other postretirement plans. Defined Contribution Plan (DCP) Defined contribution plan is a retirement plan that an employer promises to contribute toward an employee’s retirement funds periodically. Most companies will match whatever an employee contributes towards the fund. However, there would be no promise as to the ultimate benefits that would be paid into the funds because the retirement benefits are determined by the returned earned on the contributions to the funds during the investment period (Schroeder, Clark, & Cathey, 2005, p. 445). DCP is recorded on the financial statements as a pension expense, it is a straightforward transaction and it carries no risk for the employer because all the risks go to the employee. Defined Benefit Plan (DBP) Defined benefit plan is the amount of retirement benefits an employee would receive in the future but the terms are defined by the company. Most companies would have terms that would require employees to have at least 30 years of service, and reach the retirement age between 65-67 years of age to receive full...
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...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 by calculating...
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...Johnson & Johnson—Retirement Obligations a. i. An employer with a defined-contribution plan pays into the plan either an annual lump-sum per employee or calculates payments based on the employees‟ current wages and or time of service with the firm. Under such a plan, the employer does not guarantee the future amounts employees will receive when they retire. The employees covered by a defined-contribution plan assume the risk for the pension plan‟s financial performance. Under a defined-benefit plan, the employer specifies the size and timing of the payments that the employees will receive when they retire. Typically, these retirement benefits are commensurate with the wages earned by the employee in his or her last few years of employment and a function of the employee‟s years of service. The employer must fund the plan sufficiently to meet these future obligations. Under a defined-benefit plan, the employer assumes the risk for the plan‟s performance. According to the footnote, Johnson & Johnson has both types of pension plans. a. ii. Pension obligations are liabilities as defined by the FASB Concepts Statements because they represent a future economic sacrifice that the company must make. The liability relates to obligation that arose while the employees worked. The exact amount of the pension liability is not known – the company must estimate the future payments and discount them to measure the present value of the obligation. a. iii. A number of assumptions are required to...
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...or as craftsmen and “retirement” was something that usually occurred when you could no longer do manual labor. Many were struck down by illness, disease or accident and never made it to retirement age. Without the life-saving drugs and medical care we have today the average life expectancy was barely thirty years. With the advent of the industrial revolution, however, many farm dwellers traded their independence for membership in the ranks of a growing urbanized workforce searching for adequate wages and job security. Employers had a dilemma – they wanted to attract and retain workers while still paying no more than necessary, but also needed workers to leave employment when they became too old or costly. The evolving field of actuarial science was being applied to the fledgling life insurance industry and in turn used to develop pension plans to meet this employer objective. The Revenue Act of 1942 established minimum coverage rules in the tax code that prohibited employers from providing richer pension benefits to only higher paid employees. Employers also were now able to “integrate” and offset their contribution to Social Security benefits against the employer-provided pension benefit. This offset could result in a smaller or no pension benefit, especially for lower paid employees but allowed the employer to pass the minimum coverage rules. In 1970, about 45% of private sector workers were covered by a pension plan — the apex of the pension movement before its downward...
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...As people go through their entire lives they expect themselves to be able to retire after working for at least thirty years. As a matter of fact, state pensions are enough for a number of people to satisfy their basic needs for lives. Obviously, most people would want to supplement of pension plan because they have to depend on the pensions after they retire. It goes without saying that how important for them to have a stable pension plan when they are still working. A lot of employers also believe that they should set up pension plans when they still work. Pension plans not only bring benefits to the employees but also contribute the complete the corporate system. A couple years ago, some plaintiffs began filing lawsuits against pension plans sponsored by religiously- affiliated non-profit hospitals, challenging their designation as ‘‘church plans’’ under the Employee Retirement Income Security Act of 19741 (ERISA). In order to protect employee’s rights and make sure employer offer pension plans to their employees, the employee retirement income protection act of 1974 (ERISA) was published years ago, and employees can usually avoid unexpected losses in their retirement plans. The federal government set laws to protect employee’s rights with pension...
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...Benefits Program A benefit plan that includes the following benefits is personally appealing to me: 1. Health (other than dental or vision) 2. Life insurance 3. Dental 4. Vision 5. Temporary disability (accident and sickness) 6. Long-term disability 7. Code Section 125 (premium conversion, FSAs, cafeteria plans) 8. Dependent care (either through a facility or by reimbursement) 9. Supplemental unemployment 10. Prepaid legal 11. Severance pay 12. Apprenticeships and training 13. Scholarship (funded) 14. Death benefits other than life insurance 15. Educational assistance programs 16. Group legal services plan In addition to common benefits like vacation pay, holiday pay or overtime premium pay. I work in the public sector so comparing the public sector-versus-private sector taking into consideration the compensation cost of lifetime compensation public-versus-private sector pay and benefits. When total compensation is based on years worked the divide between the public and private sectors increases significantly. While preretirement compensation levels were comparable between the two sectors the retirement benefits of public sector employees are far greater than their private sector counterparts. These postemployment benefits earned over a lifetime led to the higher total compensation for the public employee. Part of the reason total lifetime compensation is more for the public employees (both with and without social security benefits) when compared with...
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