Individual And Social Value Of American Higher Education

Defined Benefit Plan

Discuss about the Individual and Social Value of American Higher Education.

With the changes in time, capital value of the people also gets depreciated due to the negative factors of the economy. The tertiary sector employees the economy is indulged in providing several sorts of services such as education, health and other busienss operations which are indulged in providing services. Tertiary sector employees are the employees who are providing their services in the multinational service operations around the globe. There are several defined business plan and superannuation contribution which will add value to the investment capital of the employees. It is analyzed that superannuation contribution is the additional benefits available to investors. It is observed that by using the superannuation contribution tertiary sector employees could multiply the earning of their investment. This type of the superannuation funds plan add value to the investors to create value on the investment and set up strong nexus between organizational growth and employees development.  There are many choices are available to investors in their superannuation funds such as Defined benefits plan, mutual fund investment and systematic investment choice plan. However, each and every tertiary sector employees need to evaluate whether the investment option undertaken will be giving appropriate benefits to them with the less risk.  In this report, employees working in the tertiary sector such as education, health and other busienss operations which are indulged in providing services to clients have been taken into consideration

With the changes in time, tertiary sector employees has to face destruction in their value of capital due to the time value of money. The defined benefits plan is the fund created by the employers for the employees in which employer promise to pay lump sum money to investors. As the name suggest the defined means the benefits which would be very well known to the employees for their long term benefits.  In order to compute the defined benefit plan for the tertiary sector employees, we could use formula in which employees’ pay, final salary, periodic investment in the funds and retirement time period will be used. After that by using these all factors, final defined benefits amount will be determined for the employees. Ideally, this defined business plan is followed when tertiary sector employees are not having other better investment option (Boston, and Prebble, 2018).

After analysing the defined investment plan for the tertiary sector employees, it could be inferred that the investment choice plan is accompanied with the selecting investment project in which the % of the employee’s salary will be invested for the certain period. Afterward, employees will get the total investment amount with interest. This investment choice is also considered as accumulation plan which assists investors to cumulate their earning for their better investment option. This benefit under the plan is highly dependent upon the king of portfolio investment which assists investors to accumulate the funding. Tertiary sector employees’ uses this funding to add value to their investment by keeping their return reinvested in the invested plan (Boston, and Prebble, 2018).

Investment Choice Plan

The investment in the superannuation plans by the tertiary sector employees is based on the several factors. However, the major factor which influences the investment decision of the tertiary sector employees is related to the risk and return available on the undertaken investment option. It is observed that due to the high uncertainty involved in the superannuation benefits plan, tertiary sector employees may find difficult to keep their value invested in long run. The investment decisions of the employees is based on the risk, return, beta of the particular investment project, time value of money and return offered by project undertaken to them. Ideally most of the tertiary sector employees are indulge in considering the tax exemption benefits plans which helps them to reduce their tax liabilities. In today’s world, there are several investment options and benefits plans which have their own merits and demerits (Bowen, 2018).  Every employee’s analysis the investment decision on their own based on their personal and economic factors. Ideally, investment decision in the defined business plan is based on the return, lock in period and risk associated with the same. Every employees needs to analysis that whether the return available on the superannuation funds is more than the inflation rate of the economy. If the rate of return offered in less than the inflation rate then it will destruct the value of their investment in long run (Kelbaliyev, et al.  2018).

In defined benefits plan, age of employees, investment option, return available to investors and market risk are the major factors which directly and indirectly affect the investment decision of tertiary sector employees.  If the market movement is high and return offered by the market is less than the monthly return given under the defined benefit plan then tertiary sector employees will invest their capital in defined benefits plan.  The defined benefit plan is accompanied with the less risk and offer good amount of return to employees which will assist them to secure their future and formulate a strong retirement benefit plan (Khodaei, 2017).

However employees who are indulged in changing jobs frequently should choose investment choice plan instead of the defined benefit plan. The return of the defined benefit plans goes down with the increased number of jobs of the employees.  Therefore, investment choice plan will be beneficial for the tertiary sector employees who are indulged in changing their jobs frequently (Park, 2017).

Factors Influencing The Investment Of Superannuation Contribution

Another factor is related to the available information in the market for the defined benefit plan and investment choice option. In case of choosing the defined benefit plan, an employee does not analysis the available information as they directly know the return and risk associated with the defined benefit plan (Stannard, 2017).

In case of investment choice plan, tertiary sector employees needs to analysis whether the return offered by the investors is more than the inflation rate of the country. They also need to analysis the lock in period and investment choice in the particular investment project (Suroso, et al., 2017).

Time value of money is also important factors which might impact the investment decision of the tertiary sector employees. If the inflow of cash after the certain period is higher in case of defined benefit plan than then the investment option available in market then tertiary sector employees should invest their capital in defined benefit plan (Stiff, et al. 2014).

The investment return on the investment choice plan depends upon the portfolio return available in all securities. In case of defined benefit plan, tertiary sector employees will be having less risk and average return. If the market factors are negative then in this case, employees will invest their capital in defined benefit plan.

Historical performance of the investment options also plays major role while deciding the investment decision in the particular available investment option. Past performance is used to compute the cost of capital and inflation rate which investors will have to use in determining the benefits available to them in near future (Atanasova, and Chemla, 2016).

It is observed that tertiary sector employees who have core knowledge about the finance are more inclined towards investing their capital in investment choice plan over the defined benefit plan. As they think that by using the core financial information they could add value to their return and increase the value of their investment (DAILY, KIEFF, and WILMARTH JR, 2014).

In addition to this, those employees who are more likely to take risk of the market and by using the fluctuated market factors want to invest capital in investment choice choose the investment choice option over the defined benefit plan (Bodie, Marcus, and Merton, 2018).

It is observed that time value of money should be taken as prior concern before investing capital in the particular investment option.  In context with the time value of money, the investment choice option turns out to be the better investment option for the investors. It is observed that if investor’s finds rate of return offered by the defined benefit plan by 4% and inflation rate of the particular country is 4.5% then in this case, employees will be facing .5% of capital loss after the certain period. It shows that Tertiary sector employees should invest their capital in the capital investment project or investment choice which offer higher amount of return as compared to inflation rate of cost of capital. The cost of capital could be computed by considering several factors such as purchasing power, inflation rate and opportunity cost of the investment (Scott, 2014).

In context with the taxes, those tertiary sector employees who have higher salary will be more inclined towards investing their capital in the defined investment plan. It will not only increase the value of their investment but also assist them to save taxes on their salaries. Taxes refer to the obligation of the employees to make payment on their earning to employees. However, in case of defined benefit plan, tax deduction in limited but in case of investment choice options, there are several options which could give higher tax exemption to tertiary sector employees on their salary. Therefore, due to the high advantage, it becomes easy for the Tertiary sector employees to choose investment choice option in their investment (Gold, 2015).

Every Tertiary sector employees should evaluate the risk and return associated with the investment option.

The time value of money and investment risk based on the long term should also be analyzed by the Tertiary sector employees before accepting the project (Schultz, 2009).

It is observed that if the market factors are positive and showing high return then tertiary sector employees should invest their capital in investment option (Munnell, 2016)

After analysing all these factors and benefits available to tertiary sector employees, it could be recommended that they needs to analysis whether investing in the defined benefit plans will render them more benefits of not. The investment decision should be based on the return, risk, inflation rate, cost of capital and other investment choices available for them in long run. The tax exemption benefit is also another factor which needs to be undertaken by tertiary sector employees before investing capital in particular project.

Conclusion

Tertiary sector employees are indulged in providing services to the society and economic at large. It is observed that both investment option named defined benefit plan and investment choice option based on the likeness and choices of different employees. The investment in the superannuation plans by the tertiary sector employees is based on the several factors. Now in the end, it could be inferred that if market factors are positive and employees could take more risk than they should invest their capital in investment options. The investment plan giving higher return and less risk should be accepted by the territory sector employees. On the other hand, if tertiary sector employees do not want to take risk then they should keep their money invested in defined benefit plan. Each and every investment option has its own pros and cons which need to be analyzed by the tertiary sector employees before investing capital in particular investment project.

References

Atanasova, C. and Chemla, G., 2016. Familiarity breeds alternative investment: Evidence from corporate defined benefit pension plans.

Bodie, Z., Marcus, A.J. and Merton, R.C., 2018. Defined benefit versus defined contribution pension plans: What are the real trade-offs?. In Pensions in the US Economy (pp. 139-162). University of Chicago Press.

Boston, J. and Prebble, R., 2018. The role and importance of long-term fiscal planning. Policy Quarterly, 9(4).

Bowen, H. 2018. Investment in learning: The individual and social value of American higher education. Routledge.

DAILY, J.E., KIEFF, F.S. and WILMARTH JR, A.E., 2014. Introduction. In Perspectives on Financing Innovation (pp. 13-16). Routledge.

Gold, J., 2015. Accounting/actuarial bias enables equity investment by defined benefit pension plans. North American Actuarial Journal, 9(3), pp.1-21.

Kelbaliyev, G.I., Mammadova, G.M., Samadli, V.M., Talibov, N.H. and Samedov, M.M., 2018. Theoretical and Experimental Investigation on Granulation Processes of Powdered Materials in Cylindrical Granulator. J Chem Appl Chem Eng 2, 1, p.2.

Khodaei, A., 2017. Provisional microgrid planning. IEEE Transactions on Smart Grid, 8(3), pp.1096-1104.

Munnell, A.H., 2016. Employer-sponsored plans: the shift from defined benefit to defined. The Oxford handbook of pensions and retirement income, 13, pp.359-380.

Park, R., 2017. Value engineering: a plan for invention. Routledge.

Schultz, R.S., 2009. Employee benefit planning. Journal of Financial Service Professionals, 53(2), p.18.

Scott, T.W., 2014. Incentives and disincentives for financial disclosure: Voluntary disclosure of defined benefit pension plan information by Canadian firms. Accounting review, pp.26-43.

Stannard, J., 2017. Reshaping the default fund process. Superfunds Magazine, (423), p.10.

Stiff, G., Sharpe, M. and Atkinson III, L.W., Genworth Holdings Inc, 2014. System and method for imbedding a defined benefit in a defined contribution plan. U.S. Patent 8,799,134.

Suroso, E., Satyajaya, W., Utomo, T.P. and Julianti, L., 2017. Financial Feasibility Study of Liquid Smoke Industry from Palm Oil Empty Fruit Bunch in Mesuji Regency, Lampung Province. INSIST, 2(1), pp.23-26.