Essay On Pension Plan

Defined Pension Plan

Defined benefit Pension Plan (DDPP)

The current pension plan which BTH provides to its employees are defined benefits pension plan. Defined benefits pension plan is an employer-sponsored retirement plan where employee benefits are sorted out based on a formula using factors such as salary history or duration of employment. The employer bears investment risk and controls portfolio management. The employer will need to dip into the company’s earnings when the returns from the investments devoted to funding the employee’s retirement result in a shortfall.

As a result of the recent downturn in the stock market, the plan is severely underfunded and it is too risky to continue offering DDPP to the new employees.

Defined contribution Pension Plan

Under Defined contribution Pension Plan, the employer will set aside a certain amount or percentage of money as benefits of the employees. There are restrictions as to when and how they can withdraw these funds without penalties. The amount contributed is fixed while the benefit is not. The employees bear the risk instead of the employer.

The accounting for DCPP is straight forward. The employer records pension expense equal to the contributions. The pension plan has no further accounting complications for the employer since the contributions are managed by a trust representing the employee. The employer shares no gain or loss on those funds. For BTH, switching from defined benefit pension to defined contribution pension will resolve the concern of incurring additional costs from the shortfall in employee benefit plan funding.

From a tax perspective, amounts paid into the pension fund by BTH and employees are tax-deductible on corporate and personal income tax returns. Em...

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...ast years. It is important to establish a well-designed performance measurement system and employee bonus plan at BTH. A good bonus/incentive plan will not only increase the productivity but also improve the quality.

The performance measurement should be built around quality and quantity. I recommend to record production statistics such as number of products and number of defects for each individual or team. The performance of each team should be evaluated by the management. The team which produces the highest quality and quantity will be awarded to encourage a quality focused culture. The team who demonstrates the most significant improvement based on the metrics will also be recognized.

Employee bonuses are tax deductible. In addition to a tax deduction for the expense, BTH will also receive much goodwill from employees. Bonuses are taxable income to employees.