pension

Examples of pension in the following topics:

• Overview of Pension Accounting

  • Due to the nature of pension plans, accounting for them is rather complicated.
  • The employer (sponsor) reports pension expense on the income statement, and a pension liability which is the sum of two accounts, accrued/prepaid pension cost and additional liability, and an intangible asset-deferred pension cost (if required).
  • In addition to reporting the pension expense on the income statement companies should disclose the following information about the pension plan:
  • The amounts for the components of pension expense for the period
  • Summarize how a company reports their pension plan on their financials statements

• Contractual Saving

  • Contractual saving institutions are insurance companies and pension funds.
  • Pension funds are another contractual savings institution.Many people save money for retirement, and pension funds become a vital form of saving.Some employers sponsor pension funds as a job benefit, or workers can voluntarily pay into personal retirement accounts.Then the financial companies manage the pension funds, and they invest pension funds into the financial markets.Pension fund managers can accurately predict when people will retire and usually invest in long-term securities, such as stocks, bonds, and mortgages.A person can only receive benefits from the pension fund after the person becomes vested.Vested means employees must work for their employer for a time period before they can receive the benefits from the pension plan.Time period varies for the pension funds.For example, some city governments require a person to be employed by the city for 10 years before this person becomes 100% vested in the city's pension plan.
  • Employers have three reasons to offer pension plans to employees.First, the pension fund managers can more efficiently manage the fund, lowering the pension funds' transaction costs.Second, the pension funds may offer benefits such as life annuities.A life annuity is a worker contributes money into the annuity until he retires.Then the worker receives regular payments every year from the annuity until his death.Life annuities could be expensive if a worker buys them individually.However, a large employer with many employees can request discounts from pension plans.Finally, the government does not tax the pension fund as workers invest funds into it, allowing the fund to grow faster.Nevertheless, government usually imposes taxes on withdrawals from a pension fund.If the employer offered higher wages and no pension plans to the employees, then the government taxes the greater income, reducing the amount an employee could invest into a retirement plan.
  • Employers have two choices for the ownership of a pension plan.First, employees own the value of the funds in the pension plan, called a defined contribution plan.If the pension fund is profitable, subsequently, the retired employees will receive greater pension income.If the pension fund is not profitable, then the retired employees will receive a low pension income.Companies that have a defined-contribution plan are likely to invest the pension funds into the companies' own stock.That way, employees have an incentive to be more productive because the value of their pension plan depends on their company's profitability.However, this pension fund becomes dangerous if this company bankrupts.Then the employees own worthless stock.One infamous case was the Enron collapse in 2001.Some employees were millionaires until their stock portfolios collapsed in value overnight.Second, the most common type of plan is the defined-benefit plan.An employer promises a worker a specific amount of benefits that are based on the employee's earnings and years of service to the company.If this pension fund is profitable, the company pays the promised benefits and retains the remaining funds that are not paid to the retired employees.If the pension fund is unprofitable, then the company pays the promised benefits out of its own pocket.
  • Federal and state governments regulate the pension funds.Regulations require the managers of the pension funds to disclose all investments.That way, employees know which securities the pension fund managers have invested in.Regulations help prevent fraud and mismanagement.Unfortunately, a pension fund will bankrupt, when the company where the employees work bankrupts.Consequently, Congress created the Pension Benefit Guaranty Corporation that insures pension fund benefits up to a limit if the company cannot meet its obligations.Some economists believe a pension fund disaster will occur for state and local government retirees after 2012.Many state and local governments offered generous defined-benefit plans to public employees, and they have not placed enough money aside to fund the pension plans.

• Employee Retirement Income Security Act

  • Kennedy created the President's Committee on Corporate Pension Plans.
  • Studebaker's pension plan was so poorly funded that only 3,600 workers who were of retirement age received full pension benefits, 4,000 workers aged 40–59 who had ten years with Studebaker received lump sum payments valued at roughly 15% of the actuarial value of their pension benefits, and the remaining 2,900 workers received no pensions .
  • ERISA does not require employers to establish pension plans.
  • Instead, it regulates the operation of a pension plan once it has been established.
  • Under ERISA, pension plans must provide for vesting of employees' pension benefits after a specified minimum number of years.

• Pensions and Unemployment Insurance

  • About half of all privately employed people and most government employees are covered by some type of pension plan.
  • Employers are not required to sponsor pension plans, but the government encourages them to do so by offering generous tax breaks if they establish and contribute to employee pensions.
  • The nature of employer-sponsored pensions changed substantially during the final three decades of the 20th century.
  • In a defined contribution plan, the employer is not responsible for how pension money is invested and does not guarantee a certain benefit.
  • Many people -- generally those who are self-employed, those whose employers do not provide a pension, and those who believe their pension plans inadequate -- also can save part of their income in special tax-favored accounts known as Individual Retirement Accounts (IRAs) and Keogh plans.

• Republican Reform Under Harrison

  • Civil service reform, pension reform, and the "Billion Dollar Congress" characterized the Harrison administration's Republican reforms.
  • His opposition to Civil War pensions and inflated currency also made enemies among veterans and farmers.
  • Harrison quickly saw the enactment of the Dependent and Disability Pension Act in 1890, a cause he had championed while in Congress.
  • Pension expenditures reached $135 million under Harrison, the largest expenditure of its kind to that point in American history, a problem exacerbated by Pension Bureau commissioner James R.
  • Tanner's expansive interpretation of the pension laws.

• Market Actors

  • Investors can include: pension funds, insurance companies, mutual funds, index funds, exchange-traded funds, and hedge funds.
  • Other classes of intermediaries include: credit unions, financial advisers or brokers, collective investment schemes, and pension funds.
  • A pension fund is any plan, fund, or scheme that provides retirement income.
  • Pension funds are important shareholders of listed and private companies.
  • The largest 300 pension funds collectively hold about $6 trillion in assets.

• Answers to Chapter 5 Questions

  • Insurance companies and pension funds.
  • For example, AIG is a large insurance company, while TIAA-Cref is a pension company for teachers and professors.

• Aging

  • In the U.S. specifically, the pension system and the healthcare sector are two important examples of this problem.
  • One of the problems that may arise from a large segment of society being aged is a pension crisis.
  • In the U.S., it is probably going to become increasingly difficult to pay corporate, federal, and state pensions, because the number of workers relative to retirees is shrinking.
  • In order to improve the sustainability of the pension system, a few measures can be undertaken.
  • Finally, it may become necessary to expand resources to fund pensions through increased contributions or higher taxes.

• Retirements

  • Many people choose to retire when they are eligible for private or public pension benefits, although some are forced to retire when physical conditions no longer allow the person to work (by illness or accident) or as a result of legislation concerning their position.
  • Previously, low life expectancy and the absence of pension arrangements meant that most workers continued to work until death.
  • Most developed countries today have systems to provide pensions or retirement, which may be sponsored by employers and/or the state.
  • Retirement with a pension is considered a right of the worker in many societies.
  • The 4 percent figure does not assume any pension or change in spending levels throughout the retirement.

• Abraham Lincoln's Family

  • After President Lincoln’s assassination, his wife Mary Todd Lincoln secured the first life pension for the widow of a president, and their son Robert rose to prominence as a lawyer and politician.
  • On July 14, 1870, two years after publication of the book, Mary was granted a life pension in the amount of $3,000 (or $56,139 in 2016 dollars), which was unprecedented at the time and passed by a small margin on account of how many congressmen Mary had alienated over the years.