There are different methods to establish a benefit fund accessible to an individual when they are...

There are different methods to establish a benefit fund accessible to an individual when they are not economically active; who is eligible to use them, advantages and disadvantages of each method vary. Sometimes companies help in setting up these funds as a condition of service.

Which ones would you recommend to an individual or company? [25 marks]

Expert Solution

Under the provisions of Employee Retirement Income Security Act (ERISA) ,there should be a proper retirement plan and health plans in to give protection for employee.

The ERISA covers two major types of retirement plans for employees: Defined benefit plans and Defined contribution plans.

A Defined benefit plans provide promise to pay a fixed monthly payment after retirement, while the second plan only fix the monthly contribution from employee and employer side.

A Simplified Employee Pension Plan (SEP) is one of the simplest savings method for retirement, where employees are allowed to deposit on with tax advantage in their individual retirement accounts (IRAs), generally owned by individual.Employers can not set up SEP with direct deduction from Salary.

A 401(k) Plan allowed deferred cash deposit for retirement purpose.

A cash balance plan provides fixed benefit like in terms of a stated account balance.

I would recommend to have an individual retirement fund arrangement which have following benefits .

Easy access for individuals
allowed deferred cash deposit as per availability
no need of transfer or adjustment in case of job change
provide a tax-favored basis investment

jeff jeffy answered 1 year ago

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