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Two different types of retirement benefits that have been developed by private organizations: Defined benefit and defined contribution

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research
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Advanced
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accounting
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westminster

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  1. Introduction.
  2. Purpose of the Research.
  3. Review of the Literature.
    1. Defined Benefit Versus Defined Contribution.
    2. Benefits and Drawbacks of Defined Benefit Programs.
    3. Benefits and Drawbacks of Defined Contribution Programs.
  4. Hybrid Programs?The Best of Both Worlds?
  5. Summary of the Research.
  6. Recommendations for the HR Manager.
  7. Conclusion.

In recent years concern over the financial solvency of Social Security has lead to considerable controversy over when the fund will be exhausted. This issue has become a pervasive concern in light of the fact that the 78 million baby boomers currently living in the United States will soon reach retirement age. With so many individuals drawing on the Social Security system, there are two concerns. First, there is worry that the current system of Social Security will be unable to provide for the millions of new retirees. Second, there is concern that once baby boomers have utilized the system, there will be no money left for individuals currently in their 30s and 40s.As the Social Security crisis looms on the horizon, organizations and individuals have begun the process of creating retirement accounts that can be used to supplement Social Security income. Retirement plans, 401K programs and stock portfolios are being used by savvy investors to create a nest egg for retirement. Even though each of these investment schemes offers different benefits, each has unique drawbacks that must be considered by the investor before undertaking. For this reason, there is a direct impetus to examine the privately sponsored retirement programs that have been developed to improve outcomes for investors as they reach retirement.

[...] In addition to paying more benefits per dollar, Inglis argues that defined benefit programs also create a equity for the retirement of all employees in the organization. Specifically this author reports that, a DC plan, in which benefits are almost always available as lump sums, some participants are going to retire with more money than they will ever use and some will retire with less income than they need. DB plans, which often do not pay lump sum benefits at retirement, are more likely to make retirement income ?just right'? (p. [...]


[...] Although it seem reasonable to argue that the benefits of the defined contribution program appear to have outweighed the benefits of the defined benefit programs, the reality is that organizations are still not satisfied with the current system of providing pension benefits. This is witnessed by the fact that organizations are now experimenting with the development of new hybrid models of providing pension benefits. The new hybrid models attempt to provide employees with all of the benefits of defined benefit and defined contribution plans, without any of the drawbacks. [...]


[...] One author examining the specific context of hybrid retirement plans that have been used by the organization notes the myriad of plans that have been formulated in recent years: ?Cash balance and pension equity plans are classified as defined benefit plans but have many defined contribution plan characteristics, whereas age-weighted profit-sharing, new comparability, and target benefit plans are classified as defined contribution plans but have some defined benefit plan characteristics.? This author goes on to note that, ?Floor-offset plans consist of two separate but associated plans rather than a single plan design with both defined benefit and defined contribution plan characteristics? (Hybrid retirement p. [...]

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