Retirement Plans

Business

Quiz 16 :
Managing Retirement Assets in Multiple Plan Structures

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Quiz 16 :
Managing Retirement Assets in Multiple Plan Structures

Pension plan Pension plans are part of post retirement benefits paid to the employees. They can be defined contribution plan or defined benefit plan. Under defined contribution plan, employer makes fix percentage of contribution in the plan and similar contribution is made by the employee. Employer's liability is limited to the contribution to be made. Under defined benefit plan, employer contributes to the plan as per the age and service period of the employee. In this case of there is any shortfall for payment to the employee for the services provided the employer will have to make further contribution to the plan. There is no fix contribution as in defined contribution plan. The ideal design or structure of retirement savings plan would be to receive the cash on time upon retirement and there is no shortage of cash. Retirement savings plan selected should be able to balance the two conflict needs of preserving capital and growth of capital with inflation. The total return on the retirement plan should be higher and should be well-diversified portfolio of equity and debt. The structure of retirement saving plan would be to receive higher yield with lower risk.

Retirement Saving Plans includes both Defined Contribution Approach and Defined Benefit Approach. Defined Contribution plan refers to the method under which employer makes limited contribution and employee is also required to make matching contribution and the retirement income depends upon this accumulated amount. Individual makes such savings and investment in different types of retirement plan structures. This involves spreading of retirement resources indifferent retirement savings vehicle. This means diversifying the investment of retirement assets in different plans. This diversification of retirement sources is sometimes quite advantageous for the employees as- 1. Each plan consist of its own rules and policies and diversification of assets help in taking benefit of policy that is available in one plan and absent in another. 2. There are various features and policies in the plans that are not adopted by the employer hence unavailable to the participant, diversification of assets into various plans helps in opting different permissible features. 3. Other reasons such as reduction of risk or higher benefits drives an individual participant to diversify its assets in various and consolidate them when required to do so. 4. Diversification helps in achievement of the long terms retirement benefit by the means of investment in various different plans providing different advantages. 5. It also helps in keeping the retirement income safe. Thus, various advantages are served in holding assets in different retirement schemes.

Pension plan Pension plans are part of post retirement benefits paid to the employees. They can be defined contribution plan or defined benefit plan. Under defined contribution plan, employer makes fix percentage of contribution in the plan and similar contribution is made by the employee. Employer's liability is limited to the contribution to be made. Under defined benefit plan, employer contributes to the plan as per the age and service period of the employee. In this case of there is any shortfall for payment to the employee for the services provided the employer will have to make further contribution to the plan. There is no fix contribution as in defined contribution plan. The positioning of assets in retirement savings plan would differ based on owner's consideration for retirement income or estate planning. If the aim of retirement saving plan is to earn income then those asset would be selected which provided for higher income on retirement and if the aim is of estate planning that the asset providing higher growth would be selected.

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