Defined Benefit Plan: Analysis of Superannuation Contributions Impact

This report details various investment plans and choices available to employees for their future benefits and security, considering economic changes and the time value of money. It highlights the impact of taxes and government implications on investment value, particularly for tertiary sector employees who prefer low-risk options. The report discusses defined benefit plans and investment choice plans, examining factors influencing investment decisions such as risk, return, and tax exemptions. It also addresses the effects of the time value of money and taxes on investment returns, recommending that employees carefully evaluate investment plans based on risk, returns, and inflation rates, with a focus on investment choice plans for those seeking higher tax benefits. The conclusion emphasizes that investment decisions depend on individual circumstances and market conditions, with a preference for plans offering higher returns and lower risk, while considering lock-in periods and inflation rates.

Superannuation contributions in the
Defined Benefit Plan

Executive Summary-
This report contains the details about the various investment plans and different choices related
to investment that are available to employees for their future benefits and safety and security of
their whole life. There are so many changes happening in the economy as the time value of
money is increasing day by day. This is the main reason behind high destruction in the value of
capital investment of the employees. There are some other reasons too for the destruction like
taxes and some other government implications that create a negative impact on the investment
value. After consideration of all these factors, it has been analyzed that the employees belong to
territory sector wants to invest their money only in those options where there is no risk or a very
less risk.

Contents
INTRODUCTION...........................................................................................................................4
DEFINED BENEFIT PLAN...........................................................................................................4
INVESTMENT CHOICE PLAN....................................................................................................5
FACTORS INFLUENCING THE INVESTMENT OF SUPERANNUATION CONTRIBUTION
.........................................................................................................................................................5
EFFECT OF TIME VALUE OF MONEY, TAXES.......................................................................6
RECOMMENDATION...................................................................................................................7
CONCLUSION................................................................................................................................7
References........................................................................................................................................8

INTRODUCTION
With the passage in time, investment value of the people is getting depreciated because
there are some negative factors in the economy. Employees belong to the tertiary sector in this
economy use to provide some services like health, business operations and educations. Tertiary
sector employees refer to the employees who provide services in the multinational operation in
all over the world. There are some very beneficial business plans as well as superannuation
contribution that leads in value addition to the invested capital belong to the employees.
Superannuation gives so many extra benefits to the investors and it has been declared by doing
an analysis. In tertiary sector, it is a very attractive option for the employees to increase their
earnings by contributing in superannuation contribution. Such kind of superannuation funds plan
adds on the value of investment for investors in order to create an additional value on the
investment. It also focuses on setting up a very potential and strong nexus between the
development of the employees and the growth of the organization.
DEFINED BENEFIT PLAN
We have discussed that there is a high destruction in the value of the capital value belong
to the tertiary employees because of change in the time value of money (Johnstone, 2015). There
is some pre-defined benefit plans fund that has been created by the employers for employees in
which there is an involvement of promise by the employer to pay a sum of money to the
investors. These benefits are very essential for the employees for their future benefit and to make
their future secure for a long time period (Fabozzi and Ake, 2013). There are different formulas
that can be used to compute some benefit plans for the benefit of tertiary sector employees
(Weinstein and Jessup, 2011). In these formulas, certain things are used like employee’s
salaries, periodic investments and retirement time period. So these factors can be used for the
identification of defined benefit amount for the employees. So, there are some situations where
employees do not able to find out some good investment plans and then they opt for the defined
plan (Eckles, Halek and Zhang, 2013).

Superannuation funds
In superannuation funds, there are different options available to the employees like
Mutual fund investment plan, Defined benefits plan and systematic investment plan. Although
there is an option available for tertiary sector employees to evaluate all the investment plan and
then take decisions accordingly. They have full liberty to find out whether the investment plan
will give good benefits with low risk. This report is related to the employees of tertiary sectors
that are involved in providing services related to the activities related to health, educations and
other operations.
INVESTMENT CHOICE PLAN
After doing the analysis of the investment plan for the employees belong to tertiary
factors, it has been concluded that the investment is accompanied with the selected investment
plans in which a part of the employee’s salary will get invested for a particular time period.
Then, the employees will get the total amount that has been invested with the interest as well.
The choice of investment is also known as the accumulation plan that provides assistance to
investors to cumulate all their earnings in order to get a very good investment option. Benefit of
such plans is totally dependent upon the king of the portfolio that assists investors to get the
funding done. Employees belong to tertiary sectors use this funding to add values to the
investments by again investing the return earned by previous investment plan (Retirement
benefits examiner, 2012).
FACTORS INFLUENCING THE INVESTMENT OF SUPERANNUATION
CONTRIBUTION
The decision of making investments under superannuation plans by the tertiary sector
employees depends upon many factors. So, the important factors that creates an impact on the
investment decision of Tertiary factors employees is related to the risk and the returns on
investment activities. It is observed that there is so much of uncertainty involved in the plans
included in superannuation benefits plan (Schulmerich, 2005). Tertiary sector employees think

that it is difficult to block a certain amount of money for a long period. It is very difficult for
employees to take decisions regarding investment as there are different factors need to be
considered like beta, risk, return, time value of money and the return offered. Such employees
are also considered about the tax exemption involved by these benefit plans (Pratt and
Grabowski, 2014).
Employees do the investment analysis by considering the personal as well as economic
factors. There are some factors concerned with the investment plans like return, lock in period
and risk. Every employee needs to take decision by thinking about the affect from the inflation
rate. It should be profitable in a long run as well (Bosworth and Burke, 2014).
Major factors of defined benefit plans are the various investment options, age, return and
market risk. All these factors affect the investment decision in a direct or indirect way for
Tertiary sector employees. The defined benefit plan consists of less risk and a good return that
can secure the future of the employees and create a very strong retirement benefit plan (Goma,
2014).
Defined investment plan is not meant for the employees who keep on switching jobs and
they prefer to invest in investment choice plan. There is a disadvantage in the defined benefit
plan as it results in low returns with increased number of jobs. So, Investment choice plan is the
most beneficial plan for Tertiary sector employees.
It is not necessary for employees to know each and every thing about the defined benefit plan as
they are only concerned with the risk and return of that plan. In case of investment choice plan,
employees need to do a proper analysis for knowing the return that is offered by the investors.
Time value of money is also considered by the employees as it creates a high impact on the
returns. In investment choice plan, the overall return is depending upon the portfolio and all the
securities included and in defined benefit plan, there is an involvement of less risk and average
returns. When there are chances of market factors getting negative then employees prefer to
invest in defined benefit plan (Kilgour, 2016).

EFFECT OF TIME VALUE OF MONEY, TAXES
Money is a very important concern at the time of making decision regarding an
investment plan. Investment option to be chose by considering the time value of money (JUREK
and STAFFORD, 2015). Investors observed that the rate of return offered by a particular
investment plan by 4% and inflation rate of the state or country is 4.5% then in such cases;
employees can face a loss of 5% after a particular time period. Tertiary sector employees should
wisely select the investment option and invest in a plan where there is a higher return in
comparison to inflation rate of cost of capital. It helps higher salaried employee in Tertiary sector
by saving tax applicable on their salaries. There is a very small and a limited tax deduction in
case of defined business plans but there are some other options too that leads in a higher tax
exemption. This is the reason behind the flexibility in investment by Tertiary sector (Wiedemann
and Finke, 2015).
RECOMMENDATION
It is very important to do a proper evaluation of investment plan before investing the
amount by Tertiary sector employees. They also need to evaluate the risk. If the factors of market
are positive, then there can be high chances of good returns and employees can invest in a
particular option without the fear of risk. After considering all the factors, it is important to judge
that the investment plan of their choice can give higher returns or not. The decision should be
made by considering all the factors like risk, returns, cost of capital, and time value of money
and inflation rate. They should also consider the tax exemption benefits they can get from the
investment plan. The main recommendation for the Tertiary sector employees are related to the
investment choice plan. If they have higher tax payment due to their higher salary then they need
to invest their capital in the investment choice plan which will give them higher tax benefits. In
addition to this, the investment choice plan giving less return on capital employed rate a
compared to the inflation rate should not be accepted by them. Tertiary sector employees having
core financial knowledge should invest their capital in the different investment choice plan if
they want to create value on their investment. In addition to this, Tertiary sector employees
having high tax implication or payment should invest their capital in the bonds or other securities
which offer good amount of tax exemption on their saving.

CONCLUSION
Tertiary sector employees are basically involved in creating business services for the
society and the economy. The investment plan that an employee select is totally depend upon
his choices or in which he is most comfortable. The decision of investing an amount in
superannuation consists of different factors like the situation of the market. If market situation is
positive then an employee can take risk. Employees of tertiary sector prefer to invest in a plan
that can give those higher returns and low risk. If they don’t want to take risk then they try to
invest their money in the defined business plan. There are some advantages as well as some
disadvantages of each investment plan and it needs to be analyzed by Tertiary sector employees
to invest in a particular project. Now in the end, after consideration of all these factors, it has
been analyzed that the employees of the territory sector who wants to invest their money in
defined benefit plans should consider the lock in period, returns on investment and associated in
context with the inflation rate. The return available on the investment should be more than the
inflation rate if Tertiary sector employees want to create value on their investment.

References
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Weinstein, A., and Jessup, L. 2011. Earn it, learn it. Naperville, Ill.: Sourcebooks.

Wiedemann, V., and Finke, K. 2015. Taxing Investments in the Asia-Pacific Region: The
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