Pension

As most employees prepare for retirement, they save some portion of their earnings for future use. The savings can either be the tax-deferred retirement plan or the employer-sponsored plan. These types of savings are known as qualified plans. However, there is another plan that is known as non-qualified retirement plan (Abramson, 2008). Both qualified and non-qualified plans prepare employed and self-employed personnel to face the future with enough finances. However, these two plans have advantages and disadvantages to be discussed below.

Qualified plans offer benefits of the added tax to the employees in addition to their saving plans such as the IRAS. The employers deduct some portion of the pre-tax wages of the employees. There are also earnings and contributions summed up together to the deferred tax kept until withdrawal. There are criteria to be met to have a qualified retirement plan. On the other hand, the non-qualified plans are the plans non-eligible for the tax-deferral benefits. In this case, the contributions are taxed once the income is recognized (Lynn, 2010). The non-qualified retirement plan has fewer criteria to be met unlike the qualified retirement plan. Both plans are saving plans but differ on the taxation method. These two plans have advantages and disadvantages making one better than the other one.

The non-qualified retirement plan is not employer-sponsored rather it can be meant for a self-employed individual. The plan has its pros and cons. Firstly, the non-qualified retirement plan has no limit on the contribution the employee makes. The employee can contribute as much he or she can afford per year. For example, the employee can deposit thousands of dollars without restrictions. The plan has the tax deferral whereby all money placed on that account increases the deferred tax like any other qualified plan. However, the tax deferral is achieved while all the forfeiture and segregation requirements are fulfilled and achieved. With the non-qualified plans, one can enjoy insurance coverage and other benefits. The plan is subjected to paying the substantial death benefits in case the holder dies (Allen, 2008). With the effective modern policies, a single policy can offer several protections as it is not limited to a single benefit. The plan can pay for a long-term care, critical illness, disability as well as death. Briefly, the plan provides the employee with a full package of health benefits. Moreover, the plan has no regulations as the qualified plan. The plan enjoys freedom as there is no discrimination of the employees who is interested in the plan (Allen, 2008). Besides, the plan is flexible in that it can structure in many ways according to the employee's needs. The plan does not have a standardized structure thus making it flexible. Lastly, the non-qualified plan has a minimal filling and reporting and is usually very cheap to maintain and to establish. However, the non-qualified plan has its disadvantages.

The non-qualified plan experiences the golden handcuff provisions in that if employees fail to complete the tenure with their company or do not meet the plan specified requirements, they might lose their rights to their benefits that they were to receive. Therefore, if one does not meet the requirement stated in the plan, it results in losing all his/her benefits. Besides, the plan may face substantial risks of the forfeiture because money placed in the plan is subjected to the attachment from the creditors (Abramson, 2008). Therefore, if no risk exists, the plan is likely to be null and void and the assets of the company become taxable to the employee.

On the other hand, the qualified retirement plan is usually an employer-sponsored plan and to be a member, one must meet certain requirements. For example, the plan should have minimum funding as well as participation. However, the plan sponsor can deduct the employer's contributions as well. The contributions of the members are not taxed as well as their account earning until they receive funds (Abramson, 2008). The holders of the qualified plan can enjoy retention and recruit benefits in the company. The employees can get a boost of retention, morale and recruiting from their employers periodically. Furthermore, the benefits in the employee's package can help an employee to distinguish himself/herself among the employers, and it can help to attract more applicants to the qualified plan. The benefits package of the qualified plan helps to keep the current employees as they feel confident about their future. Besides, the package will build morale among the employees in the company. In short, employees with the qualified plan enjoy more benefits that encourage them to retain the plan.

However, there are also disadvantages with the non-qualified retirement plan. While operating with this plan, one has to adhere to the strict rules and regulations and rules regarding the benefit from the favorable taxes. Despite many benefits that come with the qualified plan, most people will prefer to use the non-qualified plan as it does not have strict rules and regulation to follow. Most people will like the non-qualified plans as they can save additional funds for the retirement. Unlike the qualified plan where the funds are restricted whereby one saves earnings from their company of work (Abramson, 2008). The non-qualified plan diversifies employees' savings ones they go beyond the annual limit. Therefore, one can save as much as he/she can afford per year without restrictions and regulations.

In conclusion, both qualified and non-qualified retirement plans are meant for the future savings to all employees. The difference is in the advantages and disadvantages each plan has. Employees will prefer a particular plan depending on its advantages and disadvantages. However, the advantages of the non-qualified plans outweigh those of the qualified plan making it better.