Basic Ideas on Pensions - Essay Example

? Management November 29, Management includes pension decisions. The research delves into pension plans and ethical business decisions. Proper pension fund management enhances an entity’s profits and assets. Basic Ideas on Pensions Pension is defined as an arrangement where the employee’s management gives payments or benefits for the employees’ retirement. The management gives the retirements benefits in exchange for the employees’ serving the company for many years (Kieso et al., 2006, p. 1210). Pay as you go pension plan scheme. Under the plan, the employee beneficiaries are paid the amount equal to the amount contributed. The management regularly deducts the pension contributions from the employee’s salaries. Another pension plan version occurs when the company contributes the entire amount to a lump sum pension fund account. Consequently, the employee can select a plan that generates a higher retirement benefit return. Investing in a riskier pension fund will increase retirement benefit returns. The employee can also choose another plan where the investments are funneled into a safer fund that generates a lesser benefit return (Kieso et al., 2006). Additionally, the employee can choose to receive the retirement amount in one lump amount or the employee can decide to receive the retirement amount in equal monthly installment amounts. The second method allows the retiree to receive the monthly retirement benefits throughout one’s lifetime (Kieso et al, 2006, p. 1244). Funding principles. The fund is also classified as a plan. The fund entity is a separate agency that manages companies’ pension plans. The fund entity receives the money invested by the company. When the employee retires, the fund company distributes the pension and other retirement benefits. The employer contributes to the pension fund and generates earnings. The employee receives benefits as pension fund recipients. The fund agency accumulates the employers’ contributions as either contributory or noncontributory (Kieso et al., 2006, p. 1244). Defined benefit plan. The defined benefit plan includes the amount of benefits that the employees will receive when they decide or are forced to retire. The state requires that employees are mandatorily required to retire when they reach a certain age. The company allocates a regular amount for the employees’ retirement benefit plan. The benefits are based on the employee’s total pension fund contributions. Likewise, the retirement amounts are based on the salaries of the employees. Employees with higher salaries will receive higher pension retirement benefits when compared to the salaries of the lower ranking line and staff employees (Kieso et al., 2006, p. 1211). Defined contribution plans. Under this plan, the employer contributes a regular amount to the pension trust. A formula is used to decide the monthly contributions. The formula incorporates the number of years of the employee’s work, the company’s business profits, and the salary. The plan indicates the amount that the employers will contribute to the plan. However, the plan does not indicate the amount that the employees will receive as retirement benefits. An example is the 401 (k) plan (Kieso et al., 2006, p. 1244). Pension fund allocation. In terms of the formulation, different companies allocate different pension expense amounts for different pension fund budgets. During 2009, General Motor’s $98,527 pension fund required a $3,405 pension expense. During 2009, the Coca Cola Company’s $3,032 pension fund amounts required a $218 pension expense budget. During the same accounting period, the Merck company’s $10,835 pension fund needed a $407 pension fund expense (Kieso et al., 2009, p. 1211). Components of pension expense. In terms of formulation, accounting for pension funds entails allocating the cost of the retirement funds to the appropriate accounting period. The service cost forms a part of the pension expense total. The interest on the liability should be added to the pension expense balance. The actual return on plan assets is equal to the income earned for investing in plan assets. Another pension expense portion, the amortization of prior service cost, includes additional increases in pension benefits for the employees working in the company for many long and loyal years (Kieso et al., 2006, p. 1244). Demographic Change and Pension Reform There are continuing demographic changes in the implementation of pension reforms. The United States pension and retirement system is better than the pension and retirement systems of most countries in the world. Consequently, the other countries should try to change their pension and retirement system. The other countries must change their current lackluster pension and retirement system to the more effective United States pension and retirement system. The United States Social Security System implements the viable pension and retirement programs (Baily, 2009, p. 200). The United States has the same demographic pressure that triggered Chile’s challenging act. The country started its privatization experiment. Initially, Chile was hit by a rickety, problematic pension plan. Chile’s General Augusto Pinochet implemented the U.S. pension plan in the Chilean nation. The United States government can prevent a repeat of the Chilean privatization crisis. In addition, the United States government can receive the benefits of the Chilean revival. In 1981, Chile followed the United States’ strategy by deleting the currently implemented pay as you go pension scheme. Instead, the Chilean companies preferred to invest ten percent of their wages in professionally managed private accounts. The new scheme allows the companies to invest their investments in stocks and bonds (Dickerson, 2005, C1). Further, other nations have replicated the successful Chilean demographic change pension plan. The countries include Argentina, Britain, Sweden, and Singapore. United States President Bush expressed admiration for Chile’s implementation of the United States-style demographic change pension plan. Specifically, President Bush reiterated Americans should be permitted to transfer some of their Social Security Benefit contributions to personal accounts. The implementation of the private retirement savings scheme has been very successful in fueling Chile’s stock and bond markets (Dickerson, 2005). In addition, Breyer Friedrich (2001, p. 409) reiterated that reforming the unfunded public pension schemes is being scrutinized by many affected sectors. The demographic changes should include pushing the burden of the pension benefit plans from the future generations to the currently living population. Currently, many companies implement a separate pension model where the employees can refuse to comply with the pension plan requirements to pay social security taxes. Consequently, the burden of the demographic change may fall on the laps of the pensioners. Also, many governments are insisting on implementing their own versions of the demographic pension plan changes. The current scene includes the majority of the population composed of elderly people and the overburdened social security system persuades the governments to implement the pension plans. Many employers of the European Union member states are searching for better ways to implement viable pension benefits for their retiring employees (Veysey, 2004, p. 10). Further, the pan-European governments are introducing pensions. The pensions will be implemented once European Union law makers approve the creation of a profitable pension structure. The structure includes setting up successful pension plans within the different pan-European nations. The shift in pension plan demographics influenced the pension plan changes within the European Union member states. The governments of the European Union states are convincing its employees that they are not deleting the government-spearheaded pension plans. Instead, the governments are scaling back the excess pension plan benefits. The scaling will help cope with the costs generated by rendering healthcare and other services to the aging population’s pension benefit needs (Veysey, 2004, p. 10). Specifically, the German government is introducing incremental reforms to the nation’s current pension fund schemes. The government recognizes the social security plan will continue to slow down in terms of employees’ replacement income amounts. There is an influencing push to try and persuade the affected parties to increase the savings from the company-engineered retirement plans and other personal savings (Veysey, 2004, p. 10). Further, the German government encourages the implementation of defined contribution pension plans. One such model is the German government’s current improvement activities that enhance the local German pension plan scheme. The German government is planning to increase the retirement age from 65 years to 67 years (Veysey, 2004, p. 10). Furthermore, there are some shortcomings of the argument. Businesses may not have enough revenues to fund the pension plans. The alternative pension plan to invest in other stock market companies’ stocks may generate losses. The recent economic depression triggered the bankruptcy of many United States companies. Consequently, the retirement pension fund may generate future zero employee retirement benefits (Veysey, 2004, p. 10). Finance-led Capitalism, Pensions, and Financial Crisis Robin Blackburn reiterated that the publicly controlled pension funds ensure a path to socialized capitalism. The plan allows capitalism to allocate the required funds to fill the retirement (pension) needs of the retiring employees. Robin Blackburn proposes that the governments must implement the more effective national pension fund. In Singapore, the government established the government-controlled Central Provident Fund. The fund includes provisions stating all its citizens must compulsorily invest for their sickness. The Singaporean citizens are required to invest in the fund in order to have the needed financial resources allocated to pay for medical emergencies including accidents (Vincent, 2003, p. 10). In addition, the Singaporean pension plan system persuades the citizens to benefit from the pension funds. The benefits include allowing the employees to apply for housing loans and other loan types. The current plan encourages the citizens to be responsible for their future. The government is ethically free to make laws that will correct any loopholes in the currently implemented pension plan schemes. The schemes are socially responsible investment alternatives. The Singaporean Central Provident Fund allows the investment of more than 89 percent of the fund amounts in bonds (Vincent, 2003, p. 10). Further, Blackburn’s recommendation pertaining to the growth in pension fund power seems to imitate a pure form of capitalistic ideals. The pension funds are not the capitalistic tools of the employees. The savings of several employees are included in the pension funds. The funds equate to the utopia of collective ownership. There is a vivid difference between the producers of the nation’s wealth and the outcome of their collective acts. Capitalism can be managed for the interest of all the affected stakeholders with employee control if the employees can influence the world’s pension fund capital investments (Vincent, 2003, p. 10). However, the direct control of the accumulated funds is not within the power of the nominal owners, the employee and management contributors to the pension plans. Pension fund capitalism seems to equate to a type of capitalism. The capitalism is due to the huge gap between owners of the funds (the worker contributors) and the fund entity (fund managers). Fund managers cannot freely decide on how the employees’ funds can be dispensed with or controlled (Vincent, 2003, p. 6). In 2006, J. B. Magdoff and Bred Foster reported that most of the largest and most stable banks financially suffered from the decline in their sales outputs. Similarly, many of the nation’s insurance companies were surprised to learn that there was a decline in the demand for their insurance products and services. Many United States companies were forced to reduce their pension and other operating expenses to allowable levels. With the decline in customers’ demands, the United States companies had to correspondingly reduce avoidable expenses. As time went on, many of the affected banks were forced to file for bankruptcy. The financial depression precipitated the inability of many bankruptcy-tainted companies from implementing the pension and retirement plans. The bankrupt and financially distressed companies had no more funds to pay or sustain the retirement and pension plans of their current and future retiring employees. Consequently, the governments were forced to come to the rescue of many of the bankrupt financial entities and business organizations, especially in terms of pension fund financial rescue (Magdoff & Foster, 2009, p. 127). Further, the two authors insist that historical factors are found to be wanting in terms of reducing the currently increasing unemployment rates. The factors include population increases and the transfer of information technology into the business environment. Consequently, the major economies have only one unavoidable path. The path is stagnation economy. The United States, Japan and the other highly industrialized nations are unavoidably destined to meet their stagnation economic stages. Stagnation crops up when most business establishments generate a declining sales output trend and the related unavoidable net profit decline trend (Magdoff & Foster, 2009, p. 127). Consequently, the affected nations should do their best to comply with their mandated responsibilities to ethically and socially climb out of their economic debacles. The democratic countries must spend more cash purchasing the communist countries’ and less industrialized countries’ lower priced products. Consequently, the cash amounts flow from the highly industrialized nations (importers) to the communist or poor countries (exporters). In turn, the exporters have enough export dollars needed to buy the production equipments assets of the highly industrialized nations. The capitalist nations will buy more than what they need in order to hasten the currently slow global economic wheel (Magdoff & Foster, 2009, p. 127). Summarizing the important points of the above discussion, the management priorities incorporate pension plan decisions. The companies’ regular funneling of cash into the required fund investments should meet the pension retirees’ fund investment requirements. The highly industrialized nations must control its overspending to prevent a similar 2008 economic downfall. Evidently, the proper management of pension fund investments, ethical management of business assets, ethical, and socially responsible investments will viably result in the retirees receiving the correct amount of pension payments during their retirement phase. References APA Style Baily, M. (2009). U.S. pension reform: Lessons from other countries. New York: Peterson Press. Breyer, F. (2001). Demographic change, endogenous labor supply and the political feasibility of pension reform. Journal of Population Economics , 14 (3), 409-424. Dickerson, M. (2005, February 5). A personal burden: Chile switched to pirvatized pension system nearly 25 years ago, and millions of workers fall into cracks. Los Angeles Times, p. C1. Kieso, D. et al. (2006). Intermediate accounting. London: J. Wiley & Sons Press. Magdoff, F., & Foster, J. B. (2009). The great financial crisis: Causes and consequences. New York. Monthly Review Press. Veysey, S. (2006). Dymographic changes spur pension reform efforts in Europe. Business Insurance , 38 (4), 10-13. Vincent, J. (2003). Old age. New York: Routledge Press. Works Cited Baily, Martin. U.S. Pension Reform: Lessons from Other Countries. New York, Peterson Press, 2009. Print. Breyer, Friedrich. “Demographic Change, Endogenous Labor Supply and the Political Feasibility of Pension Reform.” Journal of Population Economics 14.33 (2001): 409-424. Print. Dickerson, Marla. “A Personal Burden; Chile Switched to Pirvatized Pension System Nearly 25 years ago, and Millions of Workers Fall into Cracks.” Los Angeles Times 2005. C1. Print. Kieso, Donald et al. Intermediate Accounting. London: J. Wiley & Sons Press, 2006. Print. Magdoff, Fred, and Foster, John B. “The Great Financial Crisis: Causes and Consequences. New York.” Monthly Review Press 2009. Print. Veysey, Sarah. “Dymographic Changes Spur Pension Reform Efforts in Europe”. Business Insurance 38.4 (2006): 10-13. Print. Vincent, John. Old Age. New York: Routledge Press, 2003. Print. Read More