benefits vs contribution plan

2.Provide your initial response.(25points)

Let’s assume that Company X has just hired you as an HR manager (or the job that you plan to have after
graduation). The pay level is about average in the market, and the company is located in Austin, TX. Your
new colleagues and the corporate culture seem to be nice, but more time is needed to be sure. As a new
employee of Company X, you need to decide between the following two retirement plans. Read the
descriptions for the two plans and answer the questions that are followed.
Plan A (An Example of a Defined Benefits Plan)

If you select plan A, you will be paid the below annual amount in the form of an annuity (after
retirement and the age of 65).
Annual Amount = 2.3% * Average of Five Highest Annual Salaries * Total Years of Service
For example, if you have worked for Company X for 30 years and retire, and if the average of the five
highest annual salaries during your tenure at Company X was $70,000, the annual amount that you will
be receiving after the age of 65 is $48,300 (= 2.3% * $70,000 * 30 years). You will be receiving this
amount monthly (= annual amount / 12) until you die. If you die, but your spouse is alive, your spouse
will be receiving this amount until he or she dies. (But this amount will not be passed down to your
children once you and your spouse die.) If you select this plan, 7.7% of your monthly salary will be

contributed to this plan.(The company will also match 6.6% of your monthly salary to this plan to cover the cost of operation.)To be eligible for this plan, you have to work for this company for at least five years. If you have selectedthisplan and quit before the five years has been passed, the amount that you have contributed to this plan while at Company X will be returned to you, but you will not receive the above formula amount after you retire (at a different company) and age of 65. If you have selected this plan and have worked at Company X for more than five years but moved to a different company, you will still receive the above formula amount after you retire andtheage of 65. For example, ifyou have worked at Company X for 10 years, then you moved to Company Y and retired attheage of 65, you will receive 23% (= 2.3% * 10 years)of the average of the five highest annual salaries while you were at Company X. (And, of course,and hopefully, you will have some other retirement amount from Company Y).

Plan B (An Example of a Defined Contribution Plan)
If you select Plan B, 6.65% of your monthly salary will be contributed to your retirement account. The
company will match 6.6% of your monthly salary to this account. The amount in this account will be
invested in the funds that you choose. Company X provides various types of funds, from extremely low-
risk-low-return funds to extremely high-risk-high-return funds that you can invest in. Under this plan,
you can change the portfolio of your investment at any time. But unlike Plan A, you do not know how
much you will have in this account when you retire. If you have invested well, you may have a large
amount of money in this account. But if you have invested poorly, you may be left with only a small
amount of money in this account. You will have access to this money after you retire and the age of 65.
The amount in this account can be transferred to a retirement account at a different company. For
example, if you have worked at Company X for three years and then move to Company Y, the amount
that you had accrued in this account for the three years with Company X is transferred to the retirement
account that you will have in Company Y. Even if you select a retirement plan in Company Y that is
similar to Plan A (if Company Y had such a plan), the amount that you had accrued in Company X will be
kept in a retirement account in Company Y (and be continuously invested) for you to collect after your
retirement and age of 65. It is just that no additional money is added to this account since you have
selected a different plan (like Plan A) in Company Y. No minimal years of tenure are required for this
plan. The amount accrued in the account is just transferred to the new company that you work for.

Question 1) From an employee’s perspective, what are some advantages and disadvantages of the two
plans?
Question 2) Considering the advantages and disadvantages of the two plans, which plan would you
choose as a new employee of Company X? Why?
Question 3) Now, from an employer’s perspective, what are some advantages and disadvantages of the
two plans?

Collepals.com Plagiarism Free Papers

Are you looking for custom essay writing service or even dissertation writing services? Just request for our write my paper service, and we'll match you with the best essay writer in your subject! With an exceptional team of professional academic experts in a wide range of subjects, we can guarantee you an unrivaled quality of custom-written papers.

Get ZERO PLAGIARISM, HUMAN WRITTEN ESSAYS

Why Hire Collepals.com writers to do your paper?

Quality- We are experienced and have access to ample research materials.

We write plagiarism Free Content

Confidential- We never share or sell your personal information to third parties.

Support-Chat with us today! We are always waiting to answer all your questions.