Question

Retirement Plans

A defined benefit plan, most often known as a pension, is a retirement account for which your employer ponies up all the money and promises you a set payout when you retire.

A defined contribution plan, like a 401(k) or 403(b), requires you to put in your own money.

Annuity: An annuity is a contract between you and an insurance company in which you make a lump sum payment or series of payments and in return obtain regular disbursements beginning either immediately or at some point in the future. The goal of annuities is to provide a steady stream of income during retirement.

Required: 1. How does an annuity equate to a traditional payment? Write 100 words.

2. What are your thoughts about 401(k)-type, e.g. defined contribution plans, vs. traditional pension plans, e.g. defined benefit plans? Write 100 words.

3. Which type of retirement plan do you prefer? Why do you prefer that retirement plan type? Write 50 words.

4. As a cashier of Domonos, what type of retirement plan do you have at your place of employment? Write 50 words.

Please write in your own words. Please don't copy from anywhere.

Answer 1

1. In both the annuity and traditional payment, the amount needs to be set apart from the earnings of an individual for the retirement. Both provide guaranteed regular income to the individual after retirement. The early withdrawel from both the funds can result in peanlty. Broadly they may look similar, but if you come in the detailing both are different.

2.Defined contribution plans and defined benefits plans are the two types of pension plans. In defined contribution plan the employee and employer has to contribute and invest the funds to save for the retirement over time, while employee benefit plan provides a specific amount in retirement.

In defined contribution plan, the amount contributed by the employee can be invested and profit and the interest out of it will be available at the discretion of the employee. In defined benefit plan the employee is guaranteed an amount at the time of retirement base on his years of experience. The contribution plan is financial risk for the employee and the latter is financial risk for the employer

3. Both the plans have its own benefits. If you have longer financial objective then defined benefit plan is an option, because it requires minimum amount of service, in order for the employee to be vested. If the employee leaves the company prior to being vested, then will not receive any benefit. In defined contribution plan, the employee has the freedom on his own earnings.

4.Most of the employes provide defined contribution pension plans to their employees. As that is less risky for the employer.