Discuss about the Benefit Plan for Tertiary Sector Employees.
Superannuation is the tax effective way of saving for the future. A good example is where the employees contribute their money to a pool, and the company or financial institution carry out business on their behalf to earn interest. Some employees in given companies would wish to use this approach because they believe that it is the shortest way of earning much interest from the saving. The employees pooled their money together, but the investment is made by the professional managers on their behalf. After the payment of this money, one would not be allowed to receive it until him/he retires. In some cases, the government may decide to top up this money to the low income employees. The employers also contribute to the super fund, but the employer advised to make some contribution. The amount to be contributed by the employee is always determined by the employer depending on the policies and rules that guide the payment of the company. There is three main super fund contribution in the corporate financial management.
They include employer contributions, personal contributions and finally the government contribution. For this report, the personal contribution is the choice for the whole report. This is where the employees are expected to make a pool payment which will be later used by the managers to carry out business on behalf of their employees. For the self-employed people, they are required to make their contribution to the super fund (Ingles 2009). The following are some of the ways one can use to make due to the super fund: salary sacrificing, the personal input from the pay, the bank transfers to the super fund and finally the super transfer to the super main account. Retired benefits are very significancant for any employed person. Everyone believes that after attaining the retirement age he/she should be taking something home as a benefit for hard work. For this reason, the superannuation is considered to be very useful to the life of the retired employees.
Important factors that should be considered by the Benefit Plan for tertiary sector employees while deciding to place superannuation contributions in the defined benefit plan.
Defined Benefit Plan-This the pension benefits plan where the employee is assigned the periods of his service depending on the pension benefit formulae that have been used. This one of the critical factors that should be considered in payment of the superannuation. For example, if an employee has worked for 40 years and has earned a total salary of $ 50000. Then the defined benefit plan becomes 1%×40×50000=2000 (Social Security Administration 2013). The formulae are very crucial for the calculations related to the super funds. In the Defined Benefit Plan, the assigning of the payment depends on the period that has been appointed by the employer by the benefits plan formula. For example, if the employee has worked for 40 years and the total salary is $50000 and has worked for 40years, this implies that the full payment to be made is $2000. The Defined Benefit Plan is also affected by some of the attributes of the employees. These include the following: age of the employer, the number of years remaining for the retirement and finally the salary that the employee earns per month.
The retirement age
Age is one of the factors that affect both the superannuation and the DBP. When you retire at a younger age, you will be able to get a small amount of the benefits. The retirement benefit for an individual is defined for the value of the given account. The early you retire the little interest you get as a benefit. When someone retires at an early age, there are chances of missing out the additional contribution from the benefits (Garman and Forgue 2011). This is also affected by the Individual Retirement Account (IRA). A person at the age of 80 will benefit a lot than the other who starts to withdraw from the age of 60. This is a clear indication that the DBP is much affected by the age of its functionality.
The most company-sponsored retirement benefits operate under two types of the contribution namely defined benefits and the defined contribution. Depending on the source of money the employee earns, they are supposed to remit the funds to the retirement Authority. The amount of money contributed has a more significant effect on the final benefit plan of an individual (Kirkpatrick 2009). In the defined benefit plan, the employer pays a certain amount to the account of his employees when he/she retires. But in the defined contribution the amount remitted to the account is the percentage of the salary that one earns. Out of all these benefits they all contribute to the final amount in the account of the benefit plan.
How long is left to retire-The duration left to retire is one of the factors to DBP. The longer the time, the higher the benefits after they retire while the shorter the time, the smaller the benefits.
The Income Continuance Plan is the second factor to be considered before making payments on superannuation. Some of the components of the ICP include trust fund, secure fund, stable fund and shares fund. All these are very important in the retirement benefits. The income continuance plan help individual to top up his disability health account by 75%.It is one of the plans that benefits an individual from his/her account by adding a certain portion amount to his account (Basu and Drew 2010) .This will be very beneficial in case he falls sick or when affected by any illness. Under this condition, the company will only be able to pay its client if the company is satisfied that by the time the client has injuries and illness he is not able to earn any occupational support. The ICP plan can pay the clients until one become fit and can report back to the job.
The plan at the same time may decide to make a payment if the insured dies. The payment may take up to three months upon the death of the client. The benefit is entitled to an individual up to the age of 65 years. This plan is a key for the payment of the superannuation of an individual. The ICP has injuries the following funds which must be considered before the payments are made by the clients (Agnew, Bateman and Thorp 2012). The health condition of individual sometimes motivates some clients to start saving. Most of them are guaranteed good benefits after the retirement even if the condition will not allow them to work and earn a living. It is advisable for the employees to start saving with the retirement Authorities to be assured of good health after the retirement. The Income continuance plan is considered as a key pillar in the process of remitting the money to the Authorities.
These are payments that are paid to the clients and help them in honoring them by the issuing any financial institution. The following are some of the examples of the share funds: Cash, Money orders, Cashier’s Checks, State tax funds and bank right transfer. IN the secured fund there is less risk incurred in the investment.
It sometimes referred to us the conservative investment with a defined value. That it is like the money traded in the market such as a bond, but sometimes they offer additional value than the money market with the low rate of risk incurred. The fund itself is sometimes known for the capital preservation. That is it retains all the value of what you paid regarding cash despite the performance of the capital market. Stable funds have a low income or benefit because whatever is paid is equivalent to the low income you receive (Kirkpatrick 2009). The low-risk nature of this kind of investment helps the clients to maintain the stability of their account and also realize the quality return. In overall, the company can strategize for any emergency. The risk incurred in this types of payment is inversely proportional to the return of the investment. In other words, the risk born in the venture is slightly different from the return that the client benefit.
The trustee is an individual or a firm that is appointed to supervise or administer the assets or trust fund for the benefit of the third party in an organization. The designated firm or person may help the clients or the third party in case of the bankruptcy or financial challenge that may arise. A trusty may sometimes help in the charities such as the pension plans and benefits of an individual. The contribution by the clients to the superannuation fund is sometimes determined by the decisions made by the trustees to the retirement benefit fund ((Agnew, Bateman and Thorp 2012). The trustees in the trust fund are given the mandate to make the decisions which are beneficial to the clients regarding the retirement benefits. The trust fund, the beneficiary can know the nature of the assets or titles deeds that may be required by the concern Authority before the payments are made by the third party (the beneficiaries of the retirement benefits). Trustee fund is sometimes characterized by the given risk and the return. For example, a client may decide to offer an asset such as the title deeds to the trustee, but in return fail to benefit from the same due to the mismanagement by the assigned trustees. This, therefore, calls for full collaboration between the beneficiaries and the trustees.
Shares fund is also considered to be part of the ICP in the retirement benefit. The shares fund is the mutual funds that are given to the clients by the company. This is done after a period of investment or contribution to the company kitty. Shares fund is very crucial for any company. For example in the retirement benefit companies, the money or the shares received by an individual depend on the amount of investment one has been remitting for the period This becomes one of the factors that we considered before contributing to the retirement benefit Authorities (Agnew, Bateman and Thorp 2012). The more you add to the financial pool of a company the more shares you receive as a return.
The time money value condition refers to the reality that is imposed on money for example under normal state, the value of money will still have more value despite the inflation experienced in the future. Time money value is very instrumental in the management of the organizations and companies. There are some things that pop up as a result of this conditions .sometimes the TVM is very important for example the money at hand today may be of higher value shortly. The time value for money provides a projection the financial expectation of a company soon. For this case, the financial institution can budget and prepare for the expected changes. The financial managers can have a clear picture of the expectations regarding the capital investment (Booth and Wood 2008). By using the cash flow, the monetary Authorities can use it to determine the cash flow back any potential risk that is associated with the venture. This in return help in the investment decision making of a company. The Time Value Money is also helpful in making the financial decision on the daily activities. The tool can also be used in evaluating the company's option in paying and receiving of Money (Booth and Wood 2008). The Company may also use the Time Value Money in determining the amount of money to give the customers as a return benefit. Lastly, since the tool is a projection of the future in terms of financial value, the company can budget on the type of things to buy in relation to their prices.
By considering the above factors in the superannuation, the clients will be able to make payments without any difficulty. The Defined Benefit Plan and the investment Continuance factors are very important considerations in the amount of the retiree benefits. Finally, the Time Value and Money is the best tool for decision making in an investment organization.
Agnew, J., 2013. Australia’s retirement system: Strengths, weaknesses, and reforms. Center for Retirement Research Issue Brief, pp.13-5.
Agnew, J., Bateman, H. and Thorp, S., 2012. Financial Literacy and Retirement Planning in Australian. 3(2), pp.300-310
Agnew, J., Bateman, H. and Thorp, S., 2012. Superannuation knowledge and plan behavior. 3(4), pp.345-360
Basu, A.K. and Drew, M.E., 2010. The appropriateness of default investment options in defined contribution plans: Australian evidence. Pacific-Basin Finance Journal, 18(3), pp.290-305.
Bateman, H., 2015. Structuring the payout phase in a defined contribution scheme in high income countries: Experiences of Australia and New Zealand. In Strengthening Social Protection in East Asia (pp. 91-123). Routledge.
Booth, A.L. and Wood, M., 2008. Back?to?Front Down Under? Part?Time/Full?Time Wage Differentials in Australia. Industrial Relations: A Journal of economy and society, 47(1), pp.114-135.
Garman, E.T. and Forgue, R., 2011. Personal finance. Cengage Learning.
Ingles, D., 2009. The great superannuation tax concession rort. Australia Institute.
Kirkpatrick, D.L., 2009. Implementing the Four Levels: A Practical Guide for Effective Evaluation of Training Programs: Easyread Super Large 24pt Edition. ReadHowYouWant. com.
Social Security Administration (US) ed., 2013. Social security programs throughout the world: Asia and the Pacific, 2012(No. 13). Government Printing Office.
Worthington, A.C., 2008. Knowledge and perceptions of superannuation in Australia. Journal of Consumer Policy, 31(3), pp.349-368.
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