Answer this question - Assignment Example

Retirement Plans Majority of the people who are prepared for retirement have done so through the employer-sponsored economic plan simply known as 401(k) which allows employers to deduct a sum of one’s income for retirement. The money is invested in stocks and bonds and paid out to the individual once they retire (Slesnick and Suttle, 65). The employers however use the money as an insurance to control the employees and prevent them from leaving the company earlier. This plan is available for those in private sector.

The negative side of this plan is the yield disparity where there exist disparities between employees’ retirement cash due to their income levels. Those who earned more contributed more and hence will receive more. Those in the public sector either rely on their pensions or the 403(b) which is available for the church ministers, certain tax-exempt organizations as well as public school employees. The retirement money is provided through an insurance company, invested in mutual funds or a retirement account set up.

The public employees’ retirement system is common in the state of Nebraska making it stand out from the other states such as Kansas as the retired public employees live comfortably on their retirement savings plan paid monthly (Fenge, De Menil and Pestieau 172). Americans have moved from the corporate sponsored retirement plan where the corporates were offering pensions. With the increase of people in this sector, the plan was simply too much to sustain and the employers moved towards the defined benefit (DB).

The DB plan is sponsored by the employer in addition to employee contributions. The money is then pooled together with the available funding from government and other sponsors of the plan. Employees under this plan are therefore able to receive certain benefits based on their number of years in service as well as their average salary. The DB plan can also offer payment monthly for as long as the annuitants live instead of a lump-sum distribution option (Slesnick and Suttle, 115). There is also the retirement plan of defined contribution pension plan (DC) which works similarly like a regular insurance.

The employer specifies the amount of money needed for the plan to be contributed on a regular basis. The money in invested and the performance of the investment over time as well as amount contributed will determine how much they will get in their retirement funds. Even though the plan provides more flexibility in payment, the investment risks are shouldered by the employee (Slesnick and Suttle, 143).Some people fear that if the company they work under becomes bankrupt, they will lose their retirement funds and hence opt for personal savings as a retirement plan.

The federal government however has the first order and bankruptcy codes put in place to protect such legitimate retirement plans from being affected by creditors and hence remain intact. Other than this protection, the retirement funds are protected by the Pension Benefit Guaranty Corp (PBGC) through encouragement of transparency and accountability hence no defrauding of retirees of their savings. The government however regulates the maximum amount contributed to any retirement plan to 18% of the annual income (Fenge, De Menil and Pestieau 122).

Work CitedFenge, Robert, George De Menil and Pierre Pestieau. Pension Strategies in Europe and the United States. Massachusetts: MIT Press, 2008. Slesnick, Twila and John Suttle. IRAs, 401(k)s, & Other Retirement Plans: Taking Your Money Out. New York: Nolo, 2007.