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Meaning:-
A contribution plans is easy and manageable as
the calculation of the obligation that needs to be
settled will be based on the amount that had to
be paid to the scheme for that specific period.
The contribution amount can be calculated
based on the usage of the employee
compensation formula. No actuarial
assumptions are required in calculating the
obligation and nor are the actuarial gains or
losses required. The employer will recognize
the contribution payable at the end of the period
based on the service of the employee within
that particular period. That amount will be
deducted by any payments made to the
employee within that period. Any excess
payments will be considered as prepayments
and will be deducted from the future
contributions or the employee may even get a
refund of funds for the same.
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Benefits of Contribution Plans for the
Employees:-
Portability: Contribution plans are highly
portable as they will be paid directly into the
accounts of the employees. It will allow the
employees to simply take their accumulated
funds when they shift from one job to
another.
Immediate Vesting: In most of the
contribution plans, the contributions made
by the employer to the employee’s account
will soon be considered as the property of
the employee so that the employees can gain
full benefit from the contribution plan upon
retirement or resignation.
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Personal Control: In contribution plans, the
funds will be directly credited to the
accounts of the employees while giving
them full personal control over the money
that has been funded by the employer.
Employees can adopt different investment
strategies that best suit their financial
requirements and may even grow the
investment or they may consume it for their
personal needs.
Fair Benefits: The full benefits can be
owned by the employee upon his retirement
or resignation as the contribution plan
provides the full personal control and
immediate vesting over its funds. Therefore,
the contribution plan always provides full
and undistorted benefits while granting them
access to the full value of the contribution.
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Higher Benefits: Contribution plans offer
unlimited benefits to the employees based
on the type of investment plans that they are
entitled and decided by the employer. Those
with strong and higher-level investment
plans will be hugely benefitting from the
contribution plan. And even the average
workers will be benefitting from it
subsequently.
Freedom of Choice: The contribution plan
provides enough freedom of choice for the
employees. The employees can choose their
own investments and even investment
strategies. They will also be given the
opportunity to choose their own benefit
structures and may even change their
benefits over time.
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Benefits of Contribution Plan to the
Taxpayer:-
No Investment Risk: Taxpayers will
be benefitting from the contribution
plans as they eliminate the risks of
investment. The taxpayers can
directly credit the accounts of the
employees with their contribution of
each month, unlike the benefits plan
that maintains a common pool of
money, which is risker as the
repayment is not assured.
No Political Risk: Government
intervention in contribution plans is
low when compared to the benefit
plans. Therefore, no political risks
can be seen under contribution plans
as the funds will be directly credited
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into the employee’s account, unlike
the benefit plans that maintain a
common pool of money where some
governments use it to cover up the
budget deficits.

Unformatted Attachment Preview

Meaning:A contribution plans is easy and manageable as the calculation of the obligation that needs to be settled will be based on the amount that had to be paid to the scheme for that specific period. The contribution amount can be calculated based on the usage of the employee compensation formula. No actuarial assumptions are required in calculating the obligation and nor are the actuarial gains or losses required. The employer will recognize the contribution payable at the end of the period based on the service of the employee within that particular period. That amount will be deducted by any payments made to the employee within that period. Any excess payments will be considered as prepayments and will be deducted from the future contributions or the employee may even get a refund of funds for the same. Benefits of Contribution Plans for the Employees:• • Portability: Contribution plans are highly portable as they will be paid directly into the accounts of the employees. It will allow the employees to simply take their accumulated funds when they shift from one job to another. Immediate Vesting: In most of the contribution plans, the contributions made by the employer to the employee’s account will soon be considered as the property of the employee so that the employees can gain full benefit from the contribution plan upon retirement or resignation. • • Personal Control: In contribution plans, the funds will be directly credited to the accounts of the employees while giving them full personal control over the money that has been funded by the employer. Employees can adopt different investment strategies that best suit their financial requirements and may even grow the investment or they may consume it for their personal needs. Fair Benefits: The full benefits can be owned by the employee upon his retirement or resignation as the contribution plan provides the full personal control and immediate vesting over its funds. Therefore, the contribution plan always provides full and undistorted benefits while granting them access to the full value of the contribution. • • Higher Benefits: Contribution plans offer unlimited benefits to the employees based on the type of investment plans that they are entitled and decided by the employer. Those with strong and higher-level investment plans will be hugely benefitting from the contribution plan. And even the average workers will be benefitting from it subsequently. Freedom of Choice: The contribution plan provides enough freedom of choice for the employees. The employees can choose their own investments and even investment strategies. They will also be given the opportunity to choose their own benefit structures and may even change their benefits over time. Benefits of Contribution Plan to the Taxpayer:• • No Investment Risk: Taxpayers will be benefitting from the contribution plans as they eliminate the risks of investment. The taxpayers can directly credit the accounts of the employees with their contribution of each month, unlike the benefits plan that maintains a common pool of money, which is risker as the repayment is not assured. No Political Risk: Government intervention in contribution plans is low when compared to the benefit plans. Therefore, no political risks can be seen under contribution plans as the funds will be directly credited into the employee’s account, unlike the benefit plans that maintain a common pool of money where some governments use it to cover up the budget deficits. Name: Description: ...
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