Retirement Plan :Hope for All - A Good Strategic Social Alliance through Social security :
What is Retirement? :
It means dis engagement; With drawl ;Reversing ; backward step.
All these meanings to the word Retirement are normally related to employment and Old age . There are Voluntary retirement also which ae implemented on special reasons.
A retirement plan is an arrangement to award people with an income, or pension, during retirement, when they are no longer earning a steady income from employment.
Retirement plans are normally set up by
2. insurance companies,
3. the government or
4. Other institutions such as employer associations or trade unions.
Other names of Retirement Plans:
Retirement plans are also known as
pension schemes in the UK and Ireland and
superannuation plans in Australia.
Types of retirement plans:
Retirement plans may be classified as defined benefit or defined contribution according to how the benefits are determined.
Defined Benefit Plan:
A defined benefit plan guarantees a certain payout at retirement, according to a fixed formula which usually depends on the member's salary and the number of years' membership in the plan.
Defined Contribution plan:
A defined contribution plan will provide a payout at retirement that is dependent upon the amount of money contributed and the performance of the investment vehicles utilized.
Some types of retirement plans, such as cash balance plans, combine features of both defined benefit and defined contribution plans. They are often referred to as hybrid plans.
Defined contribution plans:
In a defined contribution plan, contributions are paid into an individual account for each member.
Investment and returns:
The contributions are invested, for example in the stock market, and the returns on the investment (which may be positive or negative) are credited to the individual's account.
On retirement, the member's account is used to provide retirement benefits, often through the purchase of an annuity which provides a regular income.
A well known plan :
Defined contribution plans have become more widespread all over the world in recent years, and are now the dominant form of plan in the private sector in many countries.
For example, the number of DB plans in the US has been steadily declining, as more and more employers see the large pension contributions as a large expense that they can avoid by disbanding the plan and instead offering a defined contribution plan.
Examples of defined contribution plans in the USA include Individual Retirement Accounts (IRAs) and 401(k) plans.
Investments and Allocation for Investments:
In such plans, the employee is responsible, to one degree or another, for selecting the types of investments toward which the funds in the retirement plan are allocated.
This may range from choosing one of a small number of pre-determined mutual funds to selecting individual stocks or other securities.
Most self-directed retirement plans are characterized by certain tax advantages, and some provide for a portion of the employee's contributions to be matched by the employer.
Age restrictions for withdrawl:
In exchange, the funds in such plans may not be withdrawn by the investor prior to reaching a certain age.
Defined benefit plans:
Traditionally, retirement plans have been administered by institutions which exist specifically for that purpose,
by large businesses, or,
for government workers,
by the government itself.
Accrual rate and calculations:
A traditional form of defined benefit plan is the final salary plan, under which the pension paid is equal to the number of years worked, multiplied by the member's salary at retirement, multiplied by a factor known as the accrual rate.
The final accrued amount is available as a monthly pension or a lump sum.
In addition, many countries offer state-sponsored retirement benefits, beyond those provided by employers, which are funded by payroll or other taxes.
In the U.S., this is one role of Social Security.
Defined benefit plans may be either funded or unfunded.
In a funded plan, contributions from the employer, and sometimes also from plan members, are invested in a fund towards meeting the benefits.
The future returns on the investments, and the future benefits to be paid, are not known in advance, so there is no guarantee that a given level of contributions will be enough to meet the benefits.
Typically, the contributions to be paid are regularly reviewed in a valuation of the plan's assets and liabilities, carried out by an actuary.
In many countries, such as the USA, the UK and Australia, most private defined benefit plans are funded, because governments there provide tax incentives to funded plans.
In an unfunded plan, no funds are set aside. The benefits to be paid are met immediately by contributions to the plan.
Most government run retirement plans, such as the social security system in the USA and most European countries, are unfunded, with benefits being paid directly out of current taxes and social security contributions.
In some countries, such as Germany, Austria and Sweden, company run retirement plans are often unfunded.
In the USA, part of the risk of defined benefit plans is shifted from employees and to the federal agency, the PBGC or Pension Benefit Guaranty Corporation.
Bankruptcy and pension liabilities:
Because of this guarantee, some financially stressed employers haved tried to use bankruptcy to offload some of their pension liabilities.
While this is still being litigated and while Congress is proposing to fix the insurance system, PBGC is facing ever larger deficits.
A cash balance plan and
Target Benefit plans come under this category.
There ae controversies prevailing over these plans as the norms are yet to be legalised.
Contrasting types of retirement plans:
Advocates of defined contribution plans point out that each employee has the ability to tailor the investment portfolio to his or her individual needs and financial situation, including the choice of how much to contribute, if anything at all.
However, others state that these apparent advantages could also hinder some workers who might not possess the financial savvy to choose the correct investment vehicles or have the discipline to voluntarily contribute money to retirement accounts.
This debate parallels the discussion currently going on in the U.S., where many Republican leaders favor transforming the Social Security system, at least in part, to a self-directed investment plan.
C.EASHWER â€“ SINGAPORE