Employment Law Issues | EssayIvy.com

Running head: EMPLOYMENT LAW 1

Employment Law Issues

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EMPLOYMENT LAW 2

Employment Law Issues

Role Social Security Play In Employee Retirement

The aged population are entitled to an inflation-factored income throughout their life

through an insurance program provided by social security. An additional benefit is realized

when a delay in filing claims automatically qualifies an individual for a longevity insurance

thus increasing their lifelong monthly income. Moreover, the program is attractive due to its

stability and reliability. These factors explain why it represents a considerable percentage of

the income at the disposal of the aged in the American society. The system gets funding from

contributions made by both employees and the employers. In other countries like Sweden, the

agreements that are occupational based can lead to an employer supplementing his/her

contributions. Similarly, employees are at liberty to top up their contributions through the

uptake of private insurance. An important characteristic of social security as a retirement

benefits scheme is its portability which has resulted in the program having over 50, 000

beneficiaries by 2015 (Arnone 2015). It is important to note that two in every three people

among the beneficiaries are retirees.

Relationship between FICA, ERISA, and Social Security

The Federal Insurance Contribution Act (FICA) is a statute that allows for taxation of

compensation to raise funds for social security. It is applicable to two programs namely the

Old Age, Survivors and Disabilities (OASDI) and Medicare Insurance. On the other hand,

Employee Retirement Income Security Act of 1974 (ERISA) is as federal scheme meant to

regulate pensions for employees. It gives protective rights to beneficiaries of pension plans

covering participation, plan funding, reporting and disclosure in addition to benefit accrual.

Therefore, an employer who is running a qualified retirement plan scheme and is taxable is

subject to ERISA and should have policy, practices and procedures that comply with the act

(NAGDCA, 2012). The relationship with FICA applies to contributions, specifically pre-tax

EMPLOYMENT LAW 2

deferrals. Such a form of payroll tax withholding, though not qualified for federal deductions,

falls within the scope of the FICA taxes. Hence, while ERISA provides standards and

regulation for social security programs, FICA offers procedures for funding the scheme.

Real-World Examples of Retirement Planning Programs

The two existing pension plans include benefit and contribution plans. A benefits plan

has specific monthly pension remunerations after retirement. The calculation of such benefits

is through a plan formula, which offers consideration to salary and savings and gets

protection from federal insurance (Modugno, 2012). An example is the Cash Balance Plan,

which is a defined benefits program despite having characteristics of a contribution plan. On

the other hand, a defined contribution plan is not specific on the benefit amounts. In such a

program, the employer and/or employee are eligible to contribute to a single account. The

saved amounts are for investment purposes on behalf of the employee who eventually

receives their account balances. The balances are the contributions in addition to the profits

or lose made because of the investment. Examples of contribution plans include 401(k),

403(b), profit sharing and employee stock ownership programs. Others are the Simplified

Employee Pension, Profit Sharing, and Stock Bonus Plans.

Example of Fiduciary Responsibility under ERISA

Diversification is an example of a fiduciary responsibility important in the

minimization of risks that occur with large investment losses involved in a plan. As a result,

every investment plan that forms part of the entire portfolio should undergo consideration.

The individual or entity must make documentation when evaluating and making investment

decisions that should rely on the level of securities. They should ensure that the investments

settled on are diverse to limit the risks. However, there are no guidelines on how to go about

the process and trust investments would call for broader diversification strategies while

pooled ventures require thorough diversity (Calloway et al. 2012). It is important to note that

EMPLOYMENT LAW 2

only special circumstances would shield an entity from this responsibility. Such

circumstances would include a desire to hold onto a family business.

EMPLOYMENT LAW 3

References

Arnone, W. (2015). Social security and financial planning. National Academy of Social

Insurance, 1-21.

Calloway, M. C. B., Burdette, N., & Weber, P. L. L. C. (2012). Fiduciary duties within

fiduciary duties: Trust owning stock in a closely-held corporation. State Bar of Texas,

1-19.

Modugno, V. (2012). The effect of changes in retirement plans on employee savings and

retirement age and the financial impact on employers of delayed retirement. Society of

Actuaries, 1-30.

National Association of Government Defined Contribution Administrators (NAGDCA).

(2012). Government 457(b) primer. NAGDCA Publication Committee. Retrieved

from: http://etf.wi.gov/boards/gov_manual_WDC/nagdca-primer.pdf

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