Individual Pension Plans

This article discusses Individual Pension Plans as a retirement option for individuals with an entrepreneurial bent. It explains the benefits, funding principles, and components of pension expense. The article also explores different pension plan options and their implications for retirement benefits. It emphasizes the importance of pension plan reforms and the need for individuals to have control over their retirement savings.

Individual Pension Plans
Student’s name
Institution Affiliation(s)

Who wrote the story?
The story titled “Individual Pension Plan: a retirement option for those with an entrepreneurial
bent”, is written by Alexandra Macqueen who is a special contributor to The Globe and Mail.
When was it written?
The story article was written on the 16th of March 2019.
What is it about?
Macqueen has written a story about Individual Pension Plans. A pension is defined as an
arrangement where the employee’s management gives payments or benefits for the employees’
retirement. The management gives the retirements benefits in exchange for the employees’
serving the company for many years (Macqueen, 2019).
The article explains how the continuous decline in pension plans is leaving workers who
are not ready to retire for options. In this regard, Macqueen proposes a one-person pension plan.
They have defined contribution plans. Under this plan, the employer contributes a regular
amount to the pension trust. A formula is used to decide the monthly contributions. The formula
incorporates the number of years of the employee’s work, the company’s business profits, and
the salary. The plan indicates the amount that the employers will contribute to the plan.
However, the plan does not indicate the amount that the employees will receive as retirement
benefits. An example is the 401 (k) plan.
Macqueen's article gives options that are available for people who are planning on
leaving a job with a defined-benefit pension plan, but are not yet ready to stop working. For
instance, pay as you go pension plan scheme. Under the plan, the employee beneficiaries are paid
the amount equal to the amount contributed. The management regularly deducts the pension
contributions from the employee’s salaries. Another pension plan version occurs when the

company contributes the entire amount to a lump sum pension fund account. Consequently, the
employee can select a plan that generates a higher retirement benefit return. Investing in a riskier
pension fund will increase retirement benefit returns. The employee can also choose another plan
where the investments are funnelled into a safer fund that generates a lesser benefit return.
Additionally, the employee can choose to receive the retirement amount in one lump amount, or
the employee can decide to receive the retirement amount in equal monthly instalment amounts.
The second method allows the retiree to receive the monthly retirement benefits throughout
one’s lifetime.
Funding principles. The fund is also classified as a plan. The fund entity is a separate
agency that manages companies’ pension plans. The fund entity receives the money invested by
the company. When the employee retires, the fund company distributes the pension and other
retirement benefits. The employer contributes to the pension fund and generates earnings. The
employee receives benefits as pension fund recipients. The fund agency accumulates the
employers’ contributions as either contributory or noncontributory (Macqueen, 2019).
They have defined benefit plan. The defined benefit plan includes the number of benefits
that the employees will receive when they decide or are forced to retire. The state requires that
employees are mandatorily required to retire when they reach a certain age. The company
allocates a regular amount for the employees’ retirement benefit plan. The benefits are based on
the employee’s total pension fund contributions. Likewise, the retirement amounts are based on
the salaries of the employees. Employees with higher salaries will receive higher pension
retirement benefits when compared to the salaries of the lower ranking line and staff employees.
Macqueen explains how one may be able to transfer commuted value of their defined-benefit
pension to an Individual Pension Plan (IPP).

Components of pension expense. In terms of formulation, accounting for pension funds
entails allocating the cost of the retirement funds to the appropriate accounting period. The
service cost forms a part of the pension expense total. The interest on the liability should be
added to the pension expense balance. The actual return on plan assets is equal to the income
earned for investing in plan assets. Another pension expense portion, the amortization of prior
service cost, includes additional increases in pension benefits for the employees working in the
company for many long and loyal years (Macqueen, 2019).
Why does it matter?
The article matters because since the introduction of pensions by the pan-European
governments as the lawmakers approved the creation of a profitable pension structure, the
structure includes setting up successful pension plans within the different pan-European nations.
The shift in pension plan demographics influenced the pension plan changes within the European
Union member states. The governments of the European Union states convinced its employees
that they were not deleting the government-spearheaded pension plans. Instead, the governments
were scaling back the excess pension plan benefits. The scaling helped to cope with the costs
generated by rendering healthcare and other services to the ageing population’s pension benefit
needs.
Furthermore, there are some shortcomings of the argument. Businesses may not have
enough revenues to fund pension plans. The alternative pension plan to invest in other stock
market companies’ stocks may generate losses. The recent economic depression triggered the
bankruptcy of many United States companies. Macqueen’s recommendation pertaining to the
growth in pension fund power seems to imitate a pure form of capitalistic ideals. The pension
funds are not the capitalistic tools of the employees. The savings of several employees are

included in the pension funds. The funds equate to the utopia of collective ownership. There is a
vivid difference between the producers of the nation’s wealth and the outcome of their collective
acts. Capitalism can be managed for the interest of all the affected stakeholders with employee
control if the employees can influence the world’s pension fund capital investments (Macqueen,
2019). According to Macqueen, “With a commuted-value IPP, entrepreneurs can design and
grow their own pension benefit.”
However, the direct control of the accumulated funds is not within the power of the
nominal owners, the employee and management contributors to the pension plans. Pension fund
capitalism seems to equate to a type of capitalism. Capitalism is due to the huge gap between
owners of the funds (the worker contributors) and the fund entity (fund managers). Fund
managers cannot freely decide on how the employees’ funds can be dispensed with or controlled.
Further, the two authors insist that historical factors are found to be wanting in terms of
reducing the currently increasing unemployment rates. The factors include population increases
and the transfer of information technology into the business environment. Consequently, the
major economies have only one unavoidable path. The path is stagnation economy. The United
States, Japan and the other highly industrialized nations are unavoidably destined to meet their
stagnation economic stages. Stagnation crops up when most business establishments generate a
declining sales output trend and the related unavoidable net profit decline trend.
How does it change things?
The article is critical as it explains how a person who is not ready to retire but want to
exit a given job can have their commuted value transferred to an IPP. According to Macqueen’s
article, there are continuing demographic changes in the implementation of pension reforms. The
United States pension and retirement system is better than the pension and retirement systems of

most countries in the world. Consequently, other countries should try to change their pension and
retirement system. The other countries must change their current lacklustre pension and
retirement system to the more effective United States pension and retirement system. The United
States Social Security System implements viable pension and retirement programs.
The United States has the same demographic pressure that triggered Chile’s challenging
act. The country started its privatization experiment. Initially, Chile was hit by a rickety,
problematic pension plan. Chile’s General Augusto Pinochet implemented the U.S. pension plan
in the Chilean nation. The United States government can prevent a repeat of the Chilean
privatization crisis. In addition, the United States government can receive the benefits of the
Chilean revival. In 1981, Chile followed the United States’ strategy by deleting the currently
implemented pay as you go pension scheme. Instead, the Chilean companies preferred to invest
ten per cent of their wages in professionally managed private accounts. The new scheme allows
the companies to invest their investments in stocks and bonds.
Further, other nations have replicated the successful Chilean demographic change
pension plan. The countries include Argentina, Britain, Sweden, and Singapore. The United
States President Bush expressed admiration for Chile’s implementation of the United States-style
demographic change pension plan. Specifically, President Bush reiterated Americans should be
permitted to transfer some of their Social Security Benefit contributions to personal accounts.
The implementation of the private retirement savings scheme has been very successful in fueling
Chile’s stock and bond markets.
In addition, Macqueen (2019), reiterated that reforming the unfunded public pension
schemes is being scrutinized by many affected sectors. The demographic changes should include
pushing the burden of the pension benefit plans from future generations to the current living

population. Currently, many companies implement a separate pension model where the
employees can refuse to comply with the pension plan requirements to pay social security taxes.
Consequently, the burden of the demographic change may fall on the laps of the pensioners.
Also, many governments are insisting on implementing their own versions of the
demographic pension plan changes. The current scene includes the majority of the population
composed of elderly people, and the overburdened social security system persuades the
governments to implement the pension plans. Many employers of the European Union member
states are searching for better ways to implement viable pension benefits for their retiring
employees.
To sum up the important points of the above discussion, the management priorities
incorporate pension plan decisions. The companies’ regular funnelling of cash into the required
fund investments should meet the pension retirees’ fund investment requirements. The highly
industrialized nations must control their overspending to prevent a similar 2008 economic
downfall. Evidently, the proper management of pension fund investments, ethical management
of business assets, ethical, and socially responsible investments will viably result in the retirees
receiving the correct amount of pension payments during their retirement phase.

References
Macqueen, A. (2019, March 16). Individual Pension Plan: a retirement option for those with an
entrepreneurial bent. Retrieved from https://www.theglobeandmail.com/investing/personal-
finance/retirement/article-individual-pension-plan-a-retirement-option-for-those-with-an/
#comments