Pension Crisis

Essay by blam0381University, Bachelor'sA-, July 2006

download word file, 4 pages 4.6

Retirement Benefits

With under-funded retirement plans recently forcing companies such as US Airways into bankruptcy, and IBM into efforts to restructure future retirement plans, the threat of social security shortfalls looming on the horizon, and business trends today focusing on cost minimization, traditional benefit packages have been pared down in order to maximize a company's profit while maintaining the ability to attract talented employees. Retirement benefits have not been immune to these changes, and what was once considered the most attractive benefit of long-term employment, well funded retirement plans, have undergone the largest transformation. This paper will discuss retirement plans such as defined contribution plans, defined benefit plans, and the issues faced by companies, employees, and current retirees. In addition, I will discuss the function and purpose of the Pension Benefit Guaranty Corporation (PBGC), Employee Retirement Income Security Act of 1974 (ERISA), and Taft-Hartley Labor Management Trusts.

Defined Contribution Plans

Defined Contribution Plans are considered Individual Retirement Accounts in which an individual makes pre-tax contributions to a long-term savings and investment fund.

Defined Contribution Plans belong to the employee, who determines what level of funds to contribute to the account, and manages the investment strategy. There are several types of defined contribution plans each having different investment and payment options, although the 401-k is probably the most widely known. 401-K accounts are investment funds into which the employee and employer contribute a percentage of the employees' salary, and upon retirement, the employee begins to draw funds from the account. It is important to note that there is generally a minimum vesting period that must be completed before the employer contributions belong to the employee. Plans of this type are transferable when changing employers, and offer the advantage of reducing taxable income by the level of employee contribution, and minimize long-term...