Question

Discuss the origins and trends in retirement plans in the US. How can employers leverage retirement plans to their advantage? How would you leverage a retirement plan within a company you are running?

Answer 1

There are some main points below that they are discussed the origins and trends in retirement plans in the US.

The main points are as under.....

●According to Employee Benefit Research Institute, first pension plan was established in 1759 forwidows and children of Presbyterian ministers.

●In 1875 the American Express Company established a formal pension plan

.●Till WWII pension plans adopted primarily in railroad, banking and public utility industries

.●Revenue Act of 1921 and government imposed wage increase controls in the 1940s led companiesto adopt discretionary employee benefits such as pension plans

.●According to the US Bureau of Labor Statistics, 55% of workers employed in private sectorparticipated in at least one company sponsored plan in 1992-1993

.●This has declined to 49% in 2011.●In 2011, 41% participated in defined contribution plans and only 18% participated in defined benefitplans, indicating a shift in retirement plan participation

.●Two explanations for these trends in retirement plan

:• Shift in labor force toward different occupation and industries-decline in full-time, union workersand workers in goods-producing companies• Defined benefit plans are costly to employers compared to defined contribution planS.

The employers leverage retirement plans to their advantages are as under....

• Powerful access to capital. Financial leverage multiplies the power of every dollar you put to work. If used successfully, leveraged finance can accomplish much more than you could possibly achieve without the injection of leverage.
  • Ideal for acquisitions, buyouts. Because of the additional cost and risks of bulking up on debt, leveraged finance is best suited for brief periods where your business has a specific growth objective, such as conducting an acquisition, management buyout, share buyback or a one-time dividend

  • Retirement plans are a valuable benefit that impacts the present and future lives of employees. Because offering retirement benefits can be complicated, the best approach is understanding the pros and cons of offering retirement plan benefits, the types of retirement plan choices and the goals you want to accomplish as an employer offering retirement benefits, for your employees, your business and yourself.

    Offering retirement benefits is a great way to enhance the benefits piece of your compensation package. Employees are encouraged to save for retirement through plans set-up at work because it's easy to do. Also important for small business owners in particular, offering a retirement plan as an employee benefit allows you to take advantage of the plan for yourself. However, there are also some definite disadvantages to offering retirement benefits to employees.

  • There are some points that we can running when we are leverage retirement plans with a company are as under....

  • Simplified employee pension

  • The SEP is an individual retirement arrangement designed for business owners and self-employed professionals. Starting after your third year with the business, you can contribute up to 1) 25% of your compensation into the account or 2) $52,000 -- whichever is less. You don't need to do so every year, so that adds flexibility in the case of a revenue slowdown. Note, however, that if you're the owner and you contribute to the SEP IRA in a given year, you also have to contribute to the SEP IRA of all your eligible employees. Participants can withdraw money starting at age 59-1/2 without incurring a 10% tax penalty. Also, contributions are tax-deductible for the business.

Cash balance plan
If you're enjoying a good deal of compensation as a business owner and you'd like to leverage more of that income for retirement, a cash balance plan offers some attractive benefits. In essence, it's a pension plan, but it accrues based on a fixed-percentage contribution from your annual income plus returns (which are often similar to government bond yields).

Buy-sell agreement
If you've built your business with partners, you'll want a contract that defines the price you'll get for your interest in the business when you retire. A buy-sell agreement is that kind of instrument, setting in writing, among other details, the price of your share in the company (or the way the price will be calculated) at the point of your retirement. The agreement further determines whether the buyout amount will come as a lump sum or in installments, as well as what form (cash, stocks, etc.) the payment(s) will take.

Make sure those years of hard work pay off
Amplifying your retirement savings, taking advantage of their tax benefits, and preparing your business to become a retirement-income instrument are three of the most powerful ways that business owners can leverage their life's work for future income.