In recent years concern over the financial solvency of Social Security has lead to considerable controversy over when the fund will be exhausted. This issue has become a pervasive concern in light of the fact that the 78 million baby boomers currently living in the United States will soon reach retirement age. With so many individuals drawing on the Social Security system, there are two concerns. First, there is worry that the current system of Social Security will be unable to provide for the millions of new retirees. Second, there is concern that once baby boomers have utilized the system, there will be no money left for individuals currently in their 30s and 40s.As the Social Security crisis looms on the horizon, organizations and individuals have begun the process of creating retirement accounts that can be used to supplement Social Security income. Retirement plans, 401K programs and stock portfolios are being used by savvy investors to create a nest egg for retirement. Even though each of these investment schemes offers different benefits, each has unique drawbacks that must be considered by the investor before undertaking. For this reason, there is a direct impetus to examine the privately sponsored retirement programs that have been developed to improve outcomes for investors as they reach retirement.
[...] In addition to paying more benefits per dollar, Inglis argues that defined benefit programs also create a equity for the retirement of all employees in the organization. Specifically this author reports that, a DC plan, in which benefits are almost always available as lump sums, some participants are going to retire with more money than they will ever use and some will retire with less income than they need. DB plans, which often do not pay lump sum benefits at retirement, are more likely to make retirement income ‘just right'” (p. [...]
[...] Although it seem reasonable to argue that the benefits of the defined contribution program appear to have outweighed the benefits of the defined benefit programs, the reality is that organizations are still not satisfied with the current system of providing pension benefits. This is witnessed by the fact that organizations are now experimenting with the development of new hybrid models of providing pension benefits. The new hybrid models attempt to provide employees with all of the benefits of defined benefit and defined contribution plans, without any of the drawbacks. [...]
[...] Benefits and Drawbacks of Defined Benefit Programs Now that a rudimentary understanding of each of the benefits has been elucidated, it is important to examine each of these retirement accounts individually to provide a more integral understanding of these plans, their benefits and their risks. Schieber (2005) in his examination of defined benefit programs notes that recent media coverage of these programs have created considerable worry for investors. As organizations file for bankruptcy, unfunded defined benefit accounts are often left unsatisfied. [...]
[...] Despite the fact that steps have been taken to improve the current problems associated with defined benefit and defined contribution retirement plans, the reality of these new hybrid plans is that they have not been widely proven to be effective for eliminating all of the problems associated with more traditional plans. In fact as Korn notes many of the new hybrid programs have not been evaluated by the US Treasury Department. Korn reports that the government has taken a “wait and approach to evaluating hybrid plans. [...]
[...] With this in mind, it is easy to understand why organizations have chosen to develop hybrid pension plans that will enable employees to reap the benefits of both defined benefit and defined contribution plans. However, at the present time, hybrid plans have not proven to be effective outside of the realm of theory. Unfortunately, it may take several more years before the true efficacy of hybrid programs is known. With this in mind, it seems feasible to argue that human resource managers should develop an implement a program—either a defined benefit or a defined contribution plan—that best suits the needs of employees. [...]
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