Retirement Plan

Retirement Plan

Article 1

Pension plans are becoming a thing of past, as a matter of fact; corporations do not want the long term liability in terms of running such types of plans. Pension plans offer a life time benefit, due to this reason they are known as defined benefit plan; however the 401(k) plan known as defined contribution (DC) plan (Bodie, 2003).

I.G.A.N Local #1 is ready for negotiations in the coming year. Currently the union has a pension plan i.e. Taft Hardly Act. According to this plan company contribute around $144 on each of the member of union. However, the authority to approve the benefits lies with the board of trustees; this board includes three union members and other three from the company itself. In a period of six months, the company contributes a total of $1500 to each employee. The membership wants to have a 401(K) retirement plan instead of traditional pension plan.

Switching from pension plan to 401k plan is possible, as a matter of fact, most of the retirement plans gives an option to roll the funds from a one plan to 401k. In most of the cases, the appropriate strategy would be to directly transfer funds from the incumbent plan to a new plan, i.e. 401k plan. However, indirect rollover is also another option which is not recommended mainly due to the withholding 20 percent of the taxable amount for federal income tax. Changing from one retirement plan to another does have legal protection, and this particular situation does fall under the legal blanket (Friedberg & Owyang, 2002).

There are several pros and cons of both pension plan and 401k plans. One of the major advantages of the pension plan is it ensures guaranteed income, as long as the pension plan remains together one will be entitled for income for the whole life. This means that one will never be out of money. Another advantage of pension plan is that one does not have to take the hassle of managing the funds, company itself administer the funds throughout the span. Furthermore the employer will always guarantee semi-participation for the pension owner.

On the other hand the major advantage of 401k plan is that the money one contribute, it will legally remain one's property. One can log in to account any time to check the current status of the fund. Furthermore, 401k plan gives enough flexibility, an employer can change as many jobs as he/she want; however, the 401lk account will remain under one's control. In the 401k plan, the owner itself makes the decision of managing funds; this means that the employer would not have any influence over the funds invested. Moreover, 401k plan also gives option of taking a loan for house, education etc., against the funds in the account.

One of the disadvantages of 401k is that it the money invested does not have any security, for example, it depends on the individual's choice of investment. Moreover, if the money is stuck in the ...