Houston is among a number of cities that are facing major issues
in funding their employee pension benefits. With oil prices falling
over the past few years, the city's coffers have been negatively
affected. Voters recently approved a cap on property taxes in
Texas's largest city. This means that city officials will have
difficulty in raising enough revenue to pay all of the costs of
running the city. Houston's problems are echoed in Dallas, which
has similar issues.
City employees, firefighters, and police officers are all members
of various labor unions with collective bargaining agreements that
include substantial defined benefit retirement payments. Making any
changes to the benefit structure requires negotiating with the
labor unions and agreement of the membership. Since the benefits
have been a part of employee compensation schemes for many years,
it can be difficult to obtain their agreement on lowering their
pension payments.
Houston and Dallas city officials have not made payments to their
pension funds at a sufficient level to adequately fund employee
pension obligations. Houston underfunded its pension over the past
few years by nearly $100 million. Dallas is a smaller city than
Houston, and the government tried to issue bonds and reduce
benefits to cover its shortfall. But employees and their union
representatives rejected that approach. Houston city officials were
able to strike a deal that included employees contributing to the
pension plan and accepting lower benefits. The inevitability of a
financial crisis in the city of Houston allowed city leaders to
obtain an agreement for sharing the burden of getting the pension
plan in reasonable financial condition.
Since pension obligations are so extensive, these two Texan cities
have found it difficult to hire police officers, repair potholes,
and carry out other routine operations in the city. In addition to
the ballooning obligation, investment returns have fallen short of
expectations. In recent years, most investment funds have earned
far below the 8 percent that is built into funding plans. This
increases the gap between funds available and benefits promised.
Chicago city officials' inability to address their pension funding
gap means that the city can pay for only one-quarter of the
benefits it has promised. So, Houston and Dallas can see what will
come next if they are unable to address their funding gap in public
pensions.
Aqurose, a safety equipment manufacturing company, has decided to introduce a 401(k) plan as the defined contribution pension plan of the company. In this case, which of the following is a provision of 401(k) plans that, if introduced, is likely to be the most beneficial to Aqurose's employees?
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Ans. (B) Employees do not need to manage investment risk and make decisions regarding investment options.
A 401(k) is a retirement savings plan sponsored by an employer. It lets workers save and invest a piece of their paycheck before taxes are taken out. Taxes aren't paid until the money is withdrawn from the account. The funds are invested in a range of vehicles like stocks, bonds, mutual funds, and cash.
A company that offers a 401(k) plan typically offers employees a choice of several investment options. The options are usually managed by a financial services advisory group such as The Vanguard Group or Fidelity Investments.
Houston is among a number of cities that are facing major issues in funding their employee...
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