Home| Course Catalog| Career Planning

Free Online Course on Personal Finance

Site Search

Time and Salary

One reason a company might provide a defined-benefit plan is to encourage employees to stay with the company over the long term. In most cases, it is easier to retain a good employee than to hire and train a new employee. Providing a good retirement program is an important means by which companies retain good employees. Table 3 shows the payouts of a pension plan based on the amount of time an employee has stayed with a company; the payout is shown for two different salary levels.

 

Table 3. Payouts Based on Time and Salary

Years of Employment Average Salary Payout
10 years $55,000 $8,250
  $72,000 $10,800
20 years $55,000 $16,500
  $72,000 $21,600
30 years $55,000 $24,750
  $72,000 $32,400

               

Cash-Balance Plans

A cash-balance plan is a type of defined-benefit plan that credits your retirement account with a certain percentage of your salary each year (usually between 4 and 7 percent) plus a predetermined rate of interest. Employees have no control over the way this money is invested. The difference between cash-balance plans and plans based on a formula is that cash-balance plans grow at a predetermined rate regardless of how much money is in the account.

There are several advantages of cash-balance plans. First, like basic defined-benefit plans, these plans are noncontributory, which means that, as the employee, you do not contribute funds to this plan. Funds contributed to a cash-balance plan are free money. Second, the rate of return on a cash-balance plan is constant and guaranteed. Third, your retirement benefits are much easier to calculate because you know all of the variables and the guaranteed rate of return. Fourth, cash-balance plans are portable. If you are fully vested, you can take your principal and earnings with you when you move to another company. Fifth, cash-balance plans are much cheaper for the company, because the percentage of your salary and the guaranteed rate of return are generally low; funding these plans is not as much of a financial burden or risk to the company. One major disadvantage to employees is that the actual payouts are generally lower than the payouts of basic defined-benefit plans.

 



Our Network Of Sites:
Apply 4 Admissions.com              | A2ZColleges.com  | OpenLearningWorld.com  | Totaram.com
Anatomy Colleges.com                | Anesthesiology Schools.com  | Architecture Colleges.com | Audiology Schools.com
Cardiology Colleges.com            | Computer Science Colleges.com| Computer Science Schools.com| Dermatology Schools.com
Epidemiology Schools.com         | Gastroenterology Schools.com  | Hematology Schools.com     | Immunology Schools.com
IT Colleges.com                | Kinesiology Schools.com  | Language Colleges.com  | Music Colleges.com
Nephrology Schools.com             | Neurology Schools.com  | Neurosurgery Schools.com | Obstetrics Schools.com
Oncology Schools.com    | Ophthalmology Schools.com | Orthopedics Schools.com       | Osteopathy Schools.com
Otolaryngology Schools.com| Pathology Schools.com  | Pediatrics Schools.com  | Physical Therapy Colleges.com
Plastic Surgery Schools.com| Podiatry Schools.com  | Psychiatry Schools.com   | Pulmonary Schools.com 
Radiology Schools.com| Sports Medicine Schools.com| Surgery Schools.com | Toxicology Schools.com
US Law Colleges.com| US Med Schools.com | US Dental Schools.com

About Us Terms of Use | Contact Us | Partner with Us | Press Release | Sitemap | Disclaimer | Privacy Policy


©1999-2011 OpenLearningWorld . com - All Rights Reserved