Defined Benefit And Define Contribution Pension Schemes Accounting Essay

Defined Benefit And Define Contribution Pension Schemes Accounting Essay Pension is fund that is built during the working life of the employee and then used to secure the income after retirement. These funds can be operated by employer (occupational pension) who invests over time or alternatively employee can invest in a fund of their choice (private pension scheme). Both of these schemes generate income after retirement. The pension funds are operated in many countries. According to international financial service the UK pension fund is $1,464 billion, Germany had $268 billion and France had $164 billion. Pension schemes are of two major types: Defined benefit scheme Defined contribution scheme DEFINED BENEFIT SCHEMES: Define benefit scheme is also known as final salary scheme which stipulate a particular level of income after retirement normally based on final salary and length of service. Although there is a compulsory contribution by the employee, most of the cost of the benefit and risk of the investment is borne by the employer. For example, in most of the public sector pension schemes, UK employers pay 60% of the cost of providing the benefits and members pay 40%. Various factors which effect the contribution includes: Value of the scheme assets and investment yield. Â  The composition of scheme membership. Â  Rate of salary growth of the scheme members. Â  Longer life span after retirement. Â  Changing regulatory requirements. Contributory Defined Benefit Scheme: In this case the employees make contributions to the pension scheme. Final Salary Schemes and Career Average Salary Schemes are the contributory Defined Benefit Schemes. Final Salary Scheme: In this case the pension amount is calculated on the basis of the final salary of an employee in that company. From the employers point of view these are expensive as compared to other pension schemes. The contributions for are made by the employee for the pension scheme. Career Average Salary Scheme : It calculates the pension amount depending upon the average earnings over the total number of years an employee works in a company. The benefits would be a percentage of the average salary earned by an employee during his career in that particular company. As compared to final salary scheme they are less costly for the employers. In this case also employee contributes in the pension scheme. Non- Contributory Defined Benefit Scheme: In this case the emploer instead of employee is responsible for the contributions in the pension scheme. Cash Salary Scheme is the non contributory Scheme. Cash Salary Scheme: This is a non contributory defined benefit scheme. In this case employer contributes a particular amount of money each year on behalf of the employee. They are a combination of defined benefit scheme and defined contribution scheme. For this reason they are also called as Hybrid Schemes. Decline in Defined Benefit Schemes: In define benefit scheme employer bears most of the risk as well if the pension fund become insufficient either due to poor investment performance or large salary increases, employer must replenish the pension fund out of business revenues. Operating such scheme on average earnings rather than final salary can help to protect against higher rate of salary growth. Munnell and Soto found that many firms have frozen define benefit plans since 2003. There are Following are the number of factors which have been used by employers to explain the decline of defined benefit schemes which are described below: Source : http://www.opalliance.org.uk/decline.htm DEFINED CONTRIBUTION SCHEMES Defined contribution schemes are also known as money purchase scheme in which the employee and/or employer make contributions into a pension fund according to prescribed rules. At retirement the pension fund is used to buy annuity which is an income guaranteed for life of the recipient. Most of the personal pensions are of his type. Under defined contribution schemes following factors determine the pension income available at retirement. The contributions invested in the scheme; Product provider charges; The performance of the pension fund; The annuity rate at retirement date The main factors that determine the benefits at retirement are the contributions invested by the employee, the return on investment earned, Annuity rate, the type of annuity selected and the charges of the scheme. Due to the characteristics and benefits of this scheme, this is the most popular type of pension schemes used in UK. These contributions cover a wide variety of private and occupational schemes. In this case the risk of poor returns on investment or high cost lies with the employee instead of employer. The employees cannot forecast their pension as the return on investment fund is uncertain. The factors affecting the return like annuity rate, charges on investments and performance of investments are beyond the control of the employee. An employee can also be certain of the amount of investment made by him. In the initial stages of investment the contributions are invested in the investments where risk is high and as an employee reaches near his retirement his contributions are invested in comparatively less riskier investments. This provides a good combination of growth and security. Employees in this case can have tax relief on their contributions. The pension fund in this case therefore includes: Pension Fund = Employees Contributions + Employers Contributions + Investment Returns + Tax benefits The contributions are invested in the shares and other investments with the aim of earning more return on these investments which can help in the growth of the pension fund before the retirement of the employees. Employees can choose the investments in which they want to invest. At the time of retirement employees can take a tax free lump sum amount from their pension and the remaining amount can be used to secure an income. If an employee changes his job he can stop making payments to his fund and can leave it as it is with his previous employer. This is also known as Deferred or Preserved Pension. Otherwise with some additional cost and risk he can get it transferred to his new employer or a stakeholder. Defined contributions scheme allows employees to make regular contributions. Employer can also opt for making contributions in the pension fund. DIFFERENCE BETWEEN DEFINED BENEFIT AND DEFINED CONTRIBUTION SCHEMES. The defined benefit and defined contribution schemes can be best differentiated by determining where the risks lie. In a defined benefit scheme, the employer bears the vast majority of costs and if investment returns poor yield or costs increase, the pension fund can become insufficient and the employer must replenish the fund out of the business revenues. Whereas in a defined contribution scheme the contributions are paid at a fixed level and therefore it is the recipient who bears these risks. If they are not able to increase contributions when fund performance is poor or cost increases, then their retirement income will be lower. In UK there is an upper limit from a define benefit scheme where as there is no upper limit to the level of income generated from this scheme. Basis Defined Benefit Scheme Defined Contribuion Scheme 1. Risk Risk lies with the employer Risk lies with the employee 2. Change in Value of Investment Pension fund is fixed and pre determined. Pension funds have the growth potential. They are flexible and can provide more return. 3. Affect of Market conditions Market conditions do not affect the pension fund Market conditions affect the return on investments made by the employees. 4. Economic Conditions. Economic conditions like inflation, affects the employees. As they receive fixed amount and the value of money decreases. They have less affect of the economic conditions on the investments. 5. Cost to employer These have high cost associated with them for the employer. These plans have comparatively low cost. 6. Responsibility Responsibility to make payments lie with the employer most of the times. Employee is responsible to make payments 7. Trend These pension schemes have a downward trend these days due to the cost associated with them for the employer. They have an upward trend due to the less cost to the employers. 8. Uncertain These are comparatively more certain. The same amount invested by two different persons provides the same return. These are uncertain in nature. The employee knows the amount he or his employer invested but he is uncertain about the return on this investment. The recent rush to close final salary pension schemes to new employees means that an increasing number of workers now have to rely on defined contribution (money purchase) schemes to provide their future retirement income, either through a scheme set up by their employer or a personal pension as a group or individual arrangement. Buessing and Sotos (2006) analysis of data from Department of Labor Form 5500 filings shows that the number of individuals who participate only in a private sector define benefit plan has declined from 9.6 million in 1990 to 6.6 million in 2003. The growth of private sector define contribution plans has given employees new responsibility for managing retirement assets and made retirement wealth accumulation a function of an employees contribution and asset allocation decisions. Accrued benefits in define benefit plans do not depend on financial market returns, except in extreme circumstances such as plan insolvency. Benefits in define contribution plans, however, are a function of financial market returns. Some analysts have suggested that define contribution plans expose prospective retirees to greater risk than define benefit plans because of this link. Several recent studies have examined financial market risk in define contribution plans. Balcer and Sahin (1979) compare define benefit and define contribution plans in a lifecycle setting, recognizing that earnings uncertainty and job transitions have an important effect on the accumulated wealth of define benefit plan participants. Bodie, Marcus, and Merton (1988) note that define benefit and define contribution plans both entail risks, but that these risks are different. Neither of these studies make quantitative estimates of relative risks; two more recent studies do. Samwick and Skinner (2004) use data from the 1983 and 1989 Survey of Consumer Finances and the associated Pension Provider Supplement (PPS) to summarize DC and DB plan attributes. They generate synthetic earnings histories under the assumption that the logarithm of earnings follows a random walk with age-related drift, and they evaluate define benefit and define contribution wealth accumulation for these earnings hi stories. This approach may miss subtle stochastic properties of actual earnings histories. The results suggest that for many workers define contribution plan accumulations are likely to exceed the actuarial present discounted value (PDV) of define benefit plan benefits. Finally, Schrager (2005) uses data on earnings and job change patterns from the Panel Survey of Income Dynamics to study related issues. She finds that job turnover increased in the 1990s, making define contribution plans more attractive relative to define benefit plans for many workers. Both of the empirical studies parameterize the earnings and job change processes, thereby suppressing some of the richness in individual earnings histories. One of the key risks in both define benefit and define contribution wealth accumulation is an ex ante risk that workers face when they accept a job: what does the firms define contribution or define benefit plan offer? There is substantial variation in the generosity of employer matching contributions in define contribution plans, and in the normal retirement age and level of risks that are realized as their working career unfolds. These include their earnings path, which is a key input directly to define benefit wealth accruals and which affects the capacity to make define contribution contributions, the economic fortunes of their employer, which may lead to changes in the retirement plan parameters, their job tenure and the number of jobs they hold over their working career, the choices they make in a define contribution plan, and the financial market returns that they earn on their define contribution plan investments. Some components of both the post-retirement benefits in define benefit plans. In addition to these ex ante risks, workers also face ex post ex ante and ex post risk are under the control of the worker, who may decide whether or not to work for a firm with particular pension characteristics, whether or not to voluntarily separate from a firm with a define benefit plan, or whether or not to contribute the maximum amount to a define contribution plan. Conclusion When employers try to compare the real overall cost of providing a typical defined benefit scheme with a typical defined contribution scheme, they usually fail to compare like with like. It is often forgotten that because employers tend to benefit from favorable investment returns with defined benefit schemes, many defined benefit arrangements have actually cost a lot less than contribution levels suggest if you take into account contribution reductions and contribution holidays. Certainly when looking back beyond the recent troubled financial markets, it was not uncommon for defined benefit arrangements to be holding surpluses and/or to be taking contribution holidays. This will not be possible under a defined contribution scheme where the employer is required to maintain the agreed level of contributions irrespective of how well the investments are performing, subject only to the proviso that an individual cannot be over-funded (i.e. the benefits that can be purchased by their contributions cannot exceed the maximum as laid down by the Inland Revenue). This will not always be the case and negotiators might like to remind employers of this fact during their deliberations. Where it does not prove possible to persuade the employer to maintain a defined benefit scheme for all employees then the objective must be to ensure that the defined contribution scheme agreed is essentially based upon contributions that will actually deliver an adequate pension for future retiring employees.

Gloria Steinem’s Effect on Modern-Day History Essay

Gloria Steinem has had the greatest impact on modern day women in American society because, as an activist, she fought to achieve rights of equality. As a woman whose life was affected by society’s opinions and views of women, she was determined to change these standards. She set a goal to regulate women’s rights and have women’s role in society matter just as much as men’s. To accomplish said goals, â€Å"Gloria Steinem systemized organizations that would fight against discrimination towards any alienated group, organized speeches that covered strong topics such as women’s role in politics, women’s side of rape and pornography, and funded a company that would allow women at home to share their stories and speak for themselves† (Bauer, Garlena A, B2). Gloria Steinem has had the greatest impact of modern day society because without her assistance and provision women’s culture would diverse from what it was like in the 50s. Gloria Steinem accomplished the goals she set out to attain; she was able to change the outlook on women’s roles in America. In the 50s, American women were responsible to execute family traditions and follow the â€Å"rules† of motherhood – they didn’t really have much say in life decisions; but â€Å"Gloria Steinem changed that by getting politically active and being determined as an advocate for women’s rights of equality† (Foner, Eric and John A. Garraty, D1). â€Å"She was also nominated as a spokesperson for feminism and the leader of the enlargement of women’s rights of equality; she organized groups to fight discrimination against women such as NWPC and WAA† (Yanak, Ted and Pam, Cornelison, I1). All these actions led to an effective move towards the Women’s Liberation Movement. Steinem’s assistance towards women’s rights involved creating and editing Ms. Magazine, â€Å"the 1st feminist mass circulation magazine in the U.S. Influencing the Women’s Liberation Movement was one of her greater achievements† (Bauer, Garlena A, B2). â€Å"Others would include covering certain topics at protest that no other would discuss; such as pornography, rape, incest, abortion, poverty, lesbianism, politics, women’s health care and care for battered women† (Bauer, Garlena A, B2). All these add up to object to inequality for women in America. Overall, the battle to obtain equal rights alone is great success, but Gloria Steinem also attempted solving world problems as an activist. Not only did Gloria Steinem challenge critics and politicians by having her own say in topics about women’s rights, but â€Å"she also confronted them about resolving other complications in America and worldwide such as animal rights, the fight against genital mutilation, child abuse, and human trafficking† (Hepola, Sarah A, F3). Steinem had a lot on her plate, but she was determined to resolve as many problems and to help as many people as possible. In order to do so, she started ordering initial organizations to gain perspective and to prevent each cause from getting worse. â€Å"National Women’s Political Caucus, Equal Rights Amendment, Women’s Action Alliance, and National Black Feminist Organization†: were just some of the actions and initial organizations taken and funded my Gloria Steinem (Yanak, Ted and Pam, Cornelison, I1). With these organizations present, she was able to gain supporters; which would help her get make a point for women’s rights – the point being that she is not the only one who believed that women should be given choices like men, and that they should all have the same equivalence and impartiality. Her points were brought forth in every issue of ‘Ms. Magazine,’ where she would discuss all topics related to women’s rights and include reader’s opinions. â€Å"In every edition of ‘Ms. Magazine,’ Gloria Steinem would be sure to include readers’ personal stories† (Matthews, Glenna, E2). This was an important contribution on behalf of the readers’ part because their stories proved that women should have been entitled to their own opinion to those who weren’t activist or feminist and altered their opinions on women’s rights. Gloria Steinem also made sure to promote feminist cause – an example being reproduction rights – the articles would vary in focus but one thing that stayed the same was the fact that the articles spoke for all women who were expected more of. Gloria had different believes of what a household women should ensure. â€Å"As a feminist, Gloria Steinem criticized certain aspects of the traditional role of motherhood† (Charles Moritz, G2). She believed women should have been able to work if they would like to or marry who they loved, not who they were forced to marry because of economic or beneficial reasons. â€Å"Steinem wanted to assure that all women were able to fairly make their own choices† (Charles Moritz, G2); she knew that wasn’t an option because women were degraded only for the fact that they were women. â€Å"During years of working for a living, I have experienced much of the legal and social discrimination reserved for women in the country [†¦] all for the clearly sated sole reason that I am a woman.† (Hepola, Sarah A, F1). Within the supportive fight to gain equality for women, Gloria Steinem accomplished significant impressions on U.S. history. â€Å"She became a social activist, humanist and feminist† (Bauer, Garlena A, B1). Gloria Steinem was the target of much criticism, nevertheless, â€Å"she spent her life time committed to women’s liberation and remained committed to all political causes of the news and left a natural path into her career as a feminist to let other feminist peruse with what she started† ((Bauer, Garlena A, B1). Gloria Steinem has had the greatest impact on modern day women in American society because, as an activist, she fought to achieve rights of equality. As a woman whose life was affected by society’s opinions and views of women, she was determined to change these standards. She spoke for other women in the U.S. that were not able to do so because their opinions would not be valid since they were women. Since the understandings of women’s suffrage and the stance on women’s liberation and rights has changed from the 1950s to modern day believes, an assumption can be made that Gloria Steinem is the one who can be acknowledged for completing such task since she spent a life time committed to making a difference and making an effort to resolve the problem of discrimination.

Chester Company Essay

A unique and interesting problem arose when one company, a monopoly within the business-to-business (B2B) sensor market, split into six companies with identical products and equal footing within the market. As Director of Finance for Chester Company, one of the newly formed entities, it is important for me to identify a strategy that will enable the company to remain viable and be successful in the future. An in-depth analysis of the industry situation report provided good metrics to project future customer desires and total market potential. In order to be successful, the strategy that the management team develops must work within the identified parameters while attempting to predict how the other five companies in the B2B sensor market will proceed. There are only two segments of the B2B sensor market: low technology and high technology. The only product Chester Company offers currently fulfills the needs of both markets but this will change as the newly formed entities revise and develop products to meet customer needs. The high tech segment is appealing but will require continual investment in research and development to maintain the standards that customers expect. It will be easier to meet the needs of the customers within the low tech segment but there will likely be more competition for market share. 1. The strategy that I would like to see the management of Chester Company adopt over the next five years is that of â€Å"niche cost leader† (Capsim Management Simulations, 2012) for the low technology segment of the B2B sensor market and to obtain thirty-five percent of that market. This will be achieved by appealing to customers’ sense of thrift. To cut prices below the competition, management should retain the current product and not invest much in research and development. Production costs must also be greatly reduced. To do this, an early investment in automation is necessary as it will reduce labor expenses in future years which will increase the margin and profitability of the company. This investment will be financed through the issuance of stock and long term bonds. I also plan to provide the marketing department with a very generous budget in the first couple of years to aggressively target the market and increase the awareness and accessibility of the product early on. Short term borrowing will be necessary to finance operations and provide a cash cushion to prevent the need for an emergency loan. 2. There is a great chance for Chester Company to earn good profits within the low tech segment over the next five years. Although the price of the product must be kept to a minimum this will be offset by decreasing costs which increases the contribution margin. Also, there is greater demand for products in the low technology segment of the B2B sensor market which is expected to increase approximately ten percent each year. However, Chester Company shareholders may realize a loss in the first year due to the high marketing budget and cost of labor because the automation rating is low. Unfortunately, some sacrifices will need to be made early on to realize greater profits in the long term. 3. The product that is most important to the success of Chester Company is Cake; the product currently being produced. During the first year of business, this product will have the ability to appeal to customers across both segments of the B2B sensor market and will ultimately become the favored product of the low tech segment. Management will take advantage of the dual appeal of Cake in the first year by taking a portion of both the low tech and high tech markets in an attempt to retain some profitability. Ultimately, the product will be positioned so that it takes a large portion of the low tech market and will likely not take any portion of the high tech market by the fifth year. The plan that I developed focuses primarily on the success of the company for the next five years as there will be a lot of volatility in the market and further projections are impossible to make at this time. It is difficult to predict how the competitors within the B2B sensor market will be positioned which makes it essential for management to decrease costs as much as possible and increase market share within the low technology segment of the market. My advice to the rest of the management team is to avoid the appeal of developing a new product for either market early on and to avoid the high tech market altogether within the first five years because it will be difficult enough to remain profitable and succeed without squandering business assets on developing a product which will have little chance of being profitable within that timeframe.

The Heart By Carlos Bulosan - 1471 Words

During the early 20th century, the mainstream media pushed the narrative that it was America’s duty to go to war against the Spanish to liberate the Philippines. Due to the continuous media campaign to paint the Spanish as brutal killers, the American populous’ opinion about empire was swayed in favor of imperial rule over the Philippines. Thus, the former belief that America should remain neutral and respect state sovereignty was replaced by the belief that America’s role was to be the world’s policeman. Thus, due to public’s belief that Empire is necessary, America colonized and took over the states of Cuba, Puerto Rico, and The Philippines. In America is in the Heart by Carlos Bulosan, Bulosan explains how the militaristic and political dominance of the American empire caused many Filipinos to immigrate to America in hopes of achieving the American Dream; however, because of the increased immigration, anti-Filipino racism spiked, causing many Fi lipinos to feel disillusioned about the American Dream. To establish political hegemony across the world, the American military oftentimes recruited poor Filipino workers into the American military. For example, Carlos Bulosan explains the time when his brother, Leon, came back after being honorable discharged from the American military in World War 1. America needed bodies to go fight the war, thus, to save American lives, the American military recruited low class Philippines to go fight in the war. 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