Sunday, May 27, 2007

Pension Funds: The Benefit for Employees

The same forces of industrialization and urbanization that have generated the need for life insurance have also created the need for retirement saving. Increasing length of life and the widespread practice of mandatory retirement have intensified the need for retirement funds. The Social Security System, developed in the 1930s, provides a basic retirement income for nearly everyone, but many people wish additional retirement support. Anyone who wishes to can, of course, do his or her own saving and investment during working life and then retire on the income from his or her savings, gradually liquidate capital, or buy and annuity. However, there are tax advantages to saving through a pension fund.

Many unions have negotiated for employer-funded pension plans and have been willing to take part of their wage increases in the form of pension contributions. Since the first time pensions fund being announced, pension funds have grown in rapidly. Employer contributions to retirement funds approved by the Internal Revenue Service are treated as wage costs for tax purposes. Since employees pay no tax until benefits are received, they defer taxes by saving through a pension fund.

Employer-sponsored pension funds are administered by either a bank trust department or an insurance company. The contributions are invested by the fund manager mainly in corporate stock or bonds. Because the number of employees covered by pension funds has grown rapidly, and because wage rates have been rising, the contributions on behalf of current employees exceed the benefits paid to retired employees, and the assets of pension funds have been rising rapidly.

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Anonymous said...

Your post very informative! Thanks young man, for an old man like me, pension is really an advantage. The benefit of its, can't compare with anything. (Dracco)

Suray said...

Thanks man! I really appreciate it!

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