Should the solution be a defined contribution solution

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Reference no: EM133492530

Case: Rhetorical follow-up question for the group - Is this the the type of savings plan you might expect from the current administration, or does this feel like a 'modest proposal' from a bygone era?

When this proposed plan was unveiled, it was believed by many that the US retirement structure needed a rework. Critics to the current structure cited that fewer and fewer companies were embracing defined benefit plans.

This plan's proponents claimed it would reduce some of the financial burden being placed on most US employers who were funding retirement plans (even defined contribution plans). Keep in mind that the majority of employees in the US work for companies with less than 100 employees. (I think of 100 employees or less as a small company)

For the moment, assume you are consulting a small company in today's business environment. Would you recommend the owner(s) of a small company sponsor a retirement plan if this structure was available to their employees? Would the incentive to sponsor a retirement plan increase or decrease in this setting? Do you believe that the number of employer sponsored retirement plans would increase or decrease with this new law in place? Does this proposed structure feel like a more complex or less complex structure than what is now offered in today's retirement plan climate? Is complexity a good thing or a bad thing for you as a financial consultant?

Next, let's assume that you are a financial planner whose practice caters to individual investors and small companies. Under this new arrangement do you see more demand for your services . . . less demand . . . about the same demand? Why?

Question:

It is very interesting to note that this retirement plan model is very similar to the Canadian retirement system of: Employee-based contribution - Registered Retirement Savings Plan ("RRSP"), Company sponsored - Deferred Profit-Sharing Plan ("DPSP"), Individual sponsored - Retirement Savings Plan ("RSP"). The Canadians have all three of these retirement structures and they easily coordinate with one another. I could not help but wonder if this plan's proponent was borrowing from our neighbors to the North. Question . . . Back when this design was being offered, it was presented as a fix to the broken, existing US retirement system. In your opinion, is the current system broken and does it need a total overhaul? If so, should the solution be a defined contribution solution? Is there any room for a defined benefit solution under certain conditions or circumstances?

Reference no: EM133492530

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