superannuation funds, retirement planner
For more than 60 years the basis of the retirement security of Americans served as the state pension system (Social Security), which received the name of the Common Federal program (CFP). In 2003, more than 45 million people are paid to PFD. The average pension is around $ 900 per month for a single pensioner and about $ 1,500 a month for a pensioner with his wife (which entitled to a 50% mark-up). Total programme expenditures in 2003 are estimated at $ 465 billion.
However, the phenomenon of the last two decades of the last century was the unusually rapid growth of private pension systems of almost up to the second level of the pension system on a national scale. This growth has led to important changes both at the level of the pension, and at the macroeconomic level.
The main types of private pensions in the United States three. This is private pension plans at the place of work, personal retirement accounts, and annuities, i.e. the same pensions, accumulated and paid with the help of insurance companies. In contrast to the state pension system, all of the private pension system are of a voluntary nature. Neither employers nor employees are not required to organize or participate in such plans. At the same time, everyone has the right, in accordance with their circumstances, be a party to of not just one, but two or even more plans at their place of work, as well as to his personal pension account. Thus, a growing number of Americans gets not one (state pension), and two-three and even more the number of sources of retirement income.
As for NWP, there are two main types of pension plans: defined benefit plans (defined benefit plans or DB plans and defined contribution plans (defined contribution plans or DC plans). Defined benefit plans provide monthly pension payments in the pre-specified amount, or in some amount of dollars, or (more often) in the form of some formula, for example, 1% of the average wage for the last 5 years of work in the company for each of the studied year. Not only private plans, but also public pension systems - Federal, covering both civil servants of the Federal government, and the military, as well as most of the pension schemes of the States and local authorities are built as defined benefit plans.
Defined contribution plans, in contrast, does not provide for a payment. Payments in these plans do not depend on the length of employment and salary, but only from the amount of savings. These plans are personified: each participant in the plan has her personal pension account, and contributions plus investment income from them are on this account. In most of the existing plans with defined contribution participants can choose between various investment programmes, which offer (on average up to 10 programs), management companies, and thus to a certain extent they themselves determine the size of their future pension income. Form of payment in these plans also more diverse. There are three main options: payment of the entire amount as a whole (lump sum), annuity (variable annuity), payment of an amount equal parts (withdrawals) for a certain «term survival», which is determined by the (calculated) by the pensioner.
In plans with defined benefit pension income as a rule cannot be obtained prior to reaching retirement age, which for private savings schemes defined in the 59 years of age, even if a man has long ceased to be an active participant in this plan. Defined contribution plans in this respect are more flexible. The majority of these plans provides opportunity to receive part or all of the pension savings in the case of withdrawal from work and some emergency circumstances: severe illness, disability, death, sometimes serious financial problems. But the amount of pension income in cases of his early receipt is almost always considerably decreases.
Defined benefit plans are funded almost solely by employers, employees do not pay the contributions to these plans. Defined contribution plans are funded, as a rule, co-workers and employers. Until the mid 90-ies of employee and employer contributions are distributed approximately on a parity basis (half), but from the second half of the 90-ies, particularly in connection with the growth plans 401(K), the share of workers was considerably exceed the share of the employers. So in 1998 in defined contribution plans entrepreneurs have made 66,7 billion dollars). and workers - 89,1 billion.
Defined contribution plans were initially more common. They organized at their enterprises primarily large corporations. And now such giants as, for example, «General motors», «American airlines, «Intel» and other sponsor the plans of this type. If you take the most large-scale plans with the number of participants more than 50 thousand people, and is currently in the plans of the defined benefit participates more people (12.7 million people in 1998), than in plans with defined contributions (7.3 million people in 1998). In General, however, in the 80-ies-90-ies of defined contribution plans, in the first place plans 401(K), were much more popular. The number of active participants in these plans grew rapidly, while the number of participants, especially new entrants, defined benefit plans has been steadily declining.
in 1998 the total number of participants of the NWP has reached almost 100 million people, of them active participants, i.e. paid and continue to increase their pension income of 73 million. In fact the number and those and others - less, because the U.S. statistics includes re-employed persons, consisting in more than one plan. Of the 26 million of active plan participants in 1998 part also comprised of a person, who stopped their active participation in some of pension plans, but had not yet reached retirement age. As a rule, it is former employees of some companies, who were transferred to another job, but retained the right to receive payments on attainment of the retirement age from the previous place of work (separately vested workers). But most of the active participants were the pensioners. How many in the us people receiving a private pension, which is not precisely known.
Defined benefit plans generally of the same type and are not divided into different species, with the exception of so-called hybrid plans, i.e., defined benefit plans, which had absorbed some of the characteristics of plans with defined contribution. In contrast to this there are many types of plans with defined contribution. In this context provides a description of two of them: simplified pension plan, which is interesting in that it establishes a direct interaction with a personal pension accounts of employees; and plans 401(K), which grew especially rapidly and almost pushed to the margins of other types of DC plans.
Simplified post-employment benefit plans (A Simplified Employee Pension Plan) allow workers to transfer contributions to personal pension accounts. Working in the sphere of small business - and only them - are allowed to transfer a portion of their salary (up to 7 thousand USD in 2002) at the FSC before deduction of taxes. These plans are called simple pension plans (A Simple IRA plan). Simple plans work since 1997, they were allowed by the Law on the protection of jobs in the sphere of small business of 1996 (The Small Business Job Protection Act of 1996). Simple plans are convenient for small entrepreneurs of the fact that they simply transferred the money to the FSC its employees and assume further concerns about the management of these accounts, and also shall not bear any responsibility for the result. Partly for this reason, the introduction of such a scheme pension savings - the value of assets in the FSC at the national level for the years 1996-99 almost doubled.
However, since the 90-ies, this phenomenon of the private pension system were the plans 401(K). Plans have received its name from the number of the article of the Tax code of the United States, which allows employees to contribute a portion of their salary to the payment of income tax on his personal pension account in the framework of the organized at the place of work to defined contribution pension plan. Voluntary contributions of employers on the same account also not be taxed. These contributions vary within a broad range - from 10% to 100% of the contributions of workers - and sometimes are calculated in the form of formulas, depending on the volume of profit. Workers have the inalienable rights of the ownership for their contributions to the moment of their payment, but it normally takes 5-6 years from the moment of their accession to the said plan, before they receive the same inalienable rights of the property (vested rights) at the employer's contribution.
The current fall of the stock market and the appropriate (although to a lesser extent) the carrying value of the personal accounts of the participants of the plans 401(K) not led to a decline in the popularity of these plans. Evaluate the effectiveness of these plans should be based on them much more long-term perspective. As it follows from table 4, the average value of the balance on the account active participant in the plan 401(K) rose from 12.1 thousand dollars in 1984 to 41.5 thousand dollars in 1998, despite the constant influx of new members. According to the Directorate for pension and social payments investment income plans 401(K) in the period 1990-98 years was at the level of 12% (the same level of income is characteristic of all private pension plans in the whole over the period from 1985 to 1998.).
Benefit plans 401(K) may be illustrated by the following calculation, the Office. If on the account of the young worker, for example, at the age of 25 or 30 years, the accumulated balance in 25 thousand dollars. (and up to half of the contributions to the account can the employer do), at a conservative estimate of the average investment income in 7% in the year and the deduction of administrative expenses in the amount of 0.5% of the investment income, after 35 years of accumulation will be 227 thousand dollars). even if you do not make any additional contributions. If the same to continue to make regular contributions, the amount of money you can dramatically increase.
The popularity of plans 401(K) not in the last turn due to their great flexibility. These plans (there are several varieties of them) are also suitable for small and large businesses. From 300 thousand plans 401(K) in 1998 did not less than half existed in the sphere of small business, of which 63 thousand of these plans numbered from 1 to 9 participants. At the same time, 56 plans 401(K) cover more than 50 thousand people each. In 2002, of the 100 largest companies of the USA, which allocates the magazine fortune, 80% had two pension plans: one traditional for large corporations defined benefit plan and the second - plan 401(K), and 17% have only one plan 401(K).
There is another fundamental shift that made plans 401(K) in the private pension system of the United States lies in the fact that now a growing number of American workers and employees are involved in the management of the pension savings and thus to a large extent determine the size (and shape) of their future pension income. According to the preliminary water discharge facilities in 1998. 79% of the plans 401(K), covering 83% of all active participants of these plans and 81% of all assets, provided for the management of the employees of the investment process, or in relation to all assets, or assets, educated at the expense of the contributions of workers.
The state not only guarantees safety of pension funds, preventing abuse and punishing violators of the law, but also strongly stimulates the growth of private pension funds. The main role in this sphere is assigned to tax incentives.
The investment process is the core, the kernel and the meaning of any savings schemes. The state promotes the growth of private pension savings in the first turn, because this process ensures that the enormous scale of investments in the economy, the inflow of «long money», i.e. long-term predictable investment. For the years of advanced growth (1980-1999) pension funds the U.S. has become a major institutional investors. The assets of in this period increased from 513 to 4678 billion. For 2000-2002 years they have decreased by approximately 25%. However, despite this large and still continued rollback, the General historical trend of growth remains impressive.
Possibility of the retirement security of Americans are not limited to the state pension system and the participation in the group pension plans in the workplace. In addition to this, every American has the right to open your personal pension account (FSC) (individual retirement account) in an individual order. The size of annual contributions to the FSC are limited to the upper limit of 2 thousand dollars. The Bush administration wants to increase the ceiling of up to 5 thousand us dollars. Funds from the account cannot be removed before reaching 59.5 years, and after reaching 79,5 years account is closed in a mandatory manner. On the other hand, the FSC can be opened from the moment of birth of the child. For all time of accumulation of funds on the FSC these funds are not subject to taxation, however, at the time of their withdrawal and closing of the account of the accumulated amount is deducted from the income tax. Usually ldos are opened in the commercial and savings banks, mutual funds, insurance companies. Accounts at any moment can be transferred from one location to another on request of the holder of the account he can control them (i.e., plan the most advantageous placement of funds, accumulated in FSC) or to entrust the management of the FSC referred to financial institutions.
Another way of making and receiving pension income in the private sector of the economy, available Americans, consists of the acquisition of policies or a group or individual contracts with insurance companies on the payment of the annuity. Reserves of insurance companies to annuities in the year 2000 reached 1.3 òðèëë.$. and payment of annuities amounted to 62 billion.
However, no one questioned the effectiveness of the pension systems in the longer term. Drop in the stock market - unpleasant, but, to a very large extent, a healthy phenomenon. The decline followed the unprecedented, almost a 20-year rise. This decline is many times predicted for several years before its actual beginning, as the rise, more and more acquired speculative characteristics. If appearing like mushrooms computer and Internet firms almost instantly increased the level of its capitalization in dozens of times (champion, probably, became Yahoo (Yahoo), increasing the capitalization of about 800 times before you go bankrupt), if even such large companies as «Enron» (Enron) became çàèãðûâàòüñÿ with the criminal code, the only serious recession - normal regulator of the market - could result in the feeling of investors and speculators, clear air and a more realistic look at things.
In General, the Americans themselves will determine the sources, the sizes and the form of their future pension income, increasingly provide itself is not one, but two, three and more sources of retirement income. Management of the pension savings, i.e., their most reliable and cost-effective accommodation in the framework of the investment-savings schemes is becoming one of the usual forms of economic activity of the majority of the population, on an equal basis with their own work.
