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Homework answers / question archive / Explain why it is beneficial to take part in an employer's defined contribution plan
Explain why it is beneficial to take part in an employer's defined contribution plan . How do defined contribution plans impact the financials of companies?
A defined contribution plan is a type of retirement plan in which the employer ,employee or both make contributions on a regular basis.Individual accounts are set up for participants and benefits are based on the amount credited to these accounts (through employee contributions and ,if applicable,employer contributions) plus any investment earnings on the money in the account.in defined contribution plans, future benefits fluctuate on the basis of investment earnings.The most common type of defined contribution plan is a saving and thrift plan ,.Under this type of plan ,the employee contributes a predetermined portion of his or her earnings to an individual account ,all or part of which is matched by the employer.
Defined benefit plans allow employer to set income-replacement goals for their workforce.Employees using defined contribution plans may work longer at a higher wage if they failed to save enough for retirement.The most benefits of defined contribution plans for workers is portability.Since the contributions are paid directly into the individual accounts for each worker ,it is easy simply to allow workers to take their accumulated funds with them when they change jobs.The most obvious benefit for taxpayers of a defined contribution plan is that it eliminates investment risk for them.With the government managing a common pool of investment funds under a defined benefit plan ,the taxpayers bear the complete risk of poor investment performance.
Contribution plans impact the performance of a company in both direct and indirect wats.Directly,pensions have an influence on a business's financial statements ,includind the balancesheet.Companies are often responsible for partially funding pensions by contributing cash.Indirectly,the performance of a retirement plan can affect employee performance or the timing at which eligible individuals retire.There are different types of pensions for companies to choose from ,some business choose to offer employees more than one option.