Pension Plans of Different Nature
Pension plans differ in structure, benefits and duration
from each other. The most common and popular retirement plans are defined
contribution and defined benefit plan. Defined contribution plans are also
called money purchase plan. The hybrid plans or combination plans are a mixture
of the two plans.
According to the first scheme, defined contribution pension
plans a set amount of money is put in your name. During retirement you can have
the invested money along with its interest as pension. The draw back about the
scheme is that you will be totally in dark regarding the retirement benefit you
will receive when you retire. Certain plans of the group let workers choose
their mode of plan. In some cases the members of the boar of the organization
they work choose the mode of plan for their employees. In the end, whether you
decide it or the company decides it, the retirement benefits you get to enjoy
will be based on your investments.
Designed Benefit Pension Plans too intends to provide
certain advantages to individuals when they retire. The benefits are calculated
based on a particular formula. The service period and amount you invest are the
norms for calculating the benefits. The investor will be given clear information
about the plan when they are provided with the legal documents. Further,
members of the plan will be counseled on a yearly basis, concerning the pension
gains he or she is eligible at that moment.
The three formulas known as Flat benefit formula, Final or
best average earning formula and Career average-earning formula, are the
formulas a firm utilizes when assessing the retirement gains they have to
provide their employee.
As far as Flat benefit formula is concerned, the profits you
get on retirement will be a fixed amount. The next formula, Final or best
average earning formula provides revised benefits according to the pay you
receive. Your benefits will be decided on the period you work for the company.
A defined percentage of your final earnings or the calculated average of the
money you get in a specific time will be offered to you as retirement benefits.
Career average-earning formula, the third type works on a fixed amount a year
basis. It is fixed in accordance with your yearly income.
Both the plans mentioned above are pension plans that are
registered. There are unregistered schemes too. ESPP, DPSP and IPP are some of
unregistered pension schemes with their own set of rules and laws. The special
feature of these schemes is that the pension profits an employee gets will not
be static; it will differ according to the firm's performance.
Moreover a section of the earning of the firm too will be
given to the particular accounts. The disadvantage, if it can be called so, is
that the employee will come to know what he will get as pension benefit only at
the time of his retirement. DPSP scheme also prevents an employee to put money
in the scheme himself.To know more visit www.pensiondeductions.com
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plans | defined benefit plans
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