Masonry Magazine July 2003 Page. 43
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Most surely, employees can take heart in knowing that a fixed amount will be contributed to their account as long as they work for the firm doing the company accounting.
Defined Benefit Plans
This is a type of plan that is, for all intents and purposes, your traditional pension plan. In essence, this plan provides you with a fixed benefit upon retirement. Again, these plans now come in all sizes and are available to companies with one or more employees.
Due to the sophistication of planning for fixed future payments, however, you do require the services of an actuary to get this type of plan up and running. Establishing your plan and maintaining it is also more complex than the ease with which the other plans can be started and maintained. Also, the onus of building the capital base to support employees with a defined amount through retirement really falls on the employer primarily.
Employers must remember that once this type of plan is started, contributions are mandatory, regardless of how well or how poorly business is going. There have been publicly reported cases of some of the largest companies in the world being underfunded in their pension plans due to our recent economic times and poor planning. Large, established companies who are household words around the globe have had their pension funds adversely affected. With the likes of Exxon Mobil Corporation recently reporting that their defined benefit plan was underfunded by 34 percent, and The Coca-Cola Company being underfunded by 22 percent, you have to realize that, before starting this type of plan, you must run a very well-established company and be pretty sure that you can contribute each and every year. You also must have the cash or stock reserves to be able to inject more capital into your plan should you discover that your plan is underfunded.
While the majority of the responsibility for funding your defined benefit employee accounts falls on you, the employer, these plans can be set up to allow employee contributions, as well. However, even the amount an employee can contribute has to be calculated by an actuary. On a positive note, though, with less and less companies offering these plans nowadays, the retirement security that comes with this sort of plan can be a great lure to attract and retain top-notch workers. Employers also find the generous tax deductions that go with their contributions a great incentive for offering these plans.
In Summary
The plans I mentioned above, along with the ones I described in Part I, are now available so you can create a retirement strategy that will make all your financial dreams a reality. Depending on the specific type and size of your business, there are even more alternatives you may want to explore (Employee Stock Option Plans, etc.). A good investment manager can help you sort through all your available options and select the plan that is right for your situation. It is essential to remember, however, that regardless of your type of retirement of plan, you must also have a properly constructed investment strategy that protects your capital through all market conditions. And, as with all investments, time is one of your greatest allies. We've waited a long time for these wealth-accumulation opportunities. Check out which one is best for your business today.
Carl Sanger (cari@carlsanger.com) is the owner of Serenity Wealth Management, LLC in New York. Carl is a Registered Investment Advisor and has been managing investment capital for over 11 years. He can be reached directly at (516) 541-5985 or toll-free at (866) 958-4626.
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July 2003
Masonry 41