Employees Retirement Planning

Pension is one indispensable form of employees’ solid benefits which has positive impact on
employee discipline, loyalty and willingness to remain in the service of an employer,
commitment to the attainment of job goals and concern for the survival of the organization,An
occupational pension scheme is an arrangement under which an employer provides pension for
employees when they retire or gives deferred benefits to members who leave. It is a system
designed to provide the employees of an organization with a means of securing on retirement a
standard of living reasonably consistent with that which they enjoyed while in service.
According to Robolino (2006), he stated that many countries have opted for different forms of
contributory pension schemes, in which employees and their employers are expected to pay
certain percentages of their monthly earnings to a Retirement Savings Account (RSA) from
which they would be drawing their pension benefits after retirement.
A retirement scheme is a way of providing an employee with either a lump sum of money when
leaving the service of an employer or providing a pension to the employee. It provides benefits
which can be regarded as compensation to an employee for the services rendered to the
organization.

Retirement
Retirement signifies the detachment from primary activity in a company, trade or active facility
as full time employee (Manion, 2006). The termination could be due to a variety of factors,
including advanced age, bad health, societal burden, or plain laziness. Retirement is a period of
time when people stop working completely.Many people choose to retire when they reach
retirement age and are eligible for pension payments, but others are forced to retire because of
external circumstances that make them unable to work (Agulanna, 2003)
in any given country, there is a certain age that has been specified as the
customary retirement age and this age varies depending on the country; and it is between the
ages of 57 and 70 years (Taylor, 1992). In developed countries, this customary retirement age is
usually different for males and females.
United States being an example, a person holding the rank of an admiral or general usually
retires from work after 40 years of service unless he or she is reinstated to serve again (Taylor,
1992).
The term "retirement" refers to the act of leaving one's job or office. According to Nwajagu
(2007), a retired person is someone who has resigned from their position.
Nwajagu (2007),described three ways in which retirement can occur in Nigeria. They include
deliberate or personal retirement; required or enforced retirement and constitutional retirement.
A. Deliberate or personal retirement: This form of retirement occurs when the individual
chooses to resign from active service for private or personal aim regardless of age,
proficiency, span of service or retirement rules (Nwajagu, 2007). Deliberate retirement is
self-imposed. In other words, an individual may make up his mind to retire or to stay in the
service. Several prospects in the service are considered by the individual and where there is
no job satisfaction, such a person is at liberty to retire voluntarily (Ugwu, 2011). The only
problem with deliberate retirement is that in a situation where the person retiring has not
operated for more than ten years, he loses his benefits and retirement income but if he has
put in fifteen years in the service, he becomes entitled to payment of benefits and
retirement income. This type of retirement benefits the worker than the employer.
B. Required or enforced retirement: This is a situation in which an individual is forced or
compelled to retire against his or her wishes especially when he or she is unprepared for it.It
is usually viewed in a negative sense because of the fact that it is unforeseen.
Okechukwuand Ugwu (2011), categorized reasons for forced retirement to comprise
inefficiency, old age,ill-health, disorderliness or insubordination. This form of retirement is
in the best interest of the organization.
C. Constitutional retirement: This is a normal form of retirement. This form of
retirement occurs when the person involved has attained the compulsory age of
retirement as specified in the condition of service of the establishment (Nwajagu, 2007). By
statue, on attaining the age of sixty years (60) , an individual is bound to retire or on
achieving thirty-five (35) years in the service of employment, a person is similarly
obligated to withdraw from the service. Constitutional retirement attracts payment of
gratuity and pension.

In Nigeria, the current retirement is guided by the Federal Government Public Service
Rule (2008:28-29) which state clearly that:
1. 60 years shall be the compulsory retirement age for all statuses in the public service or 35
years of pensionable service whichever is earlier.
2. No officer in the military or paramilitary shall be allowed to remain in service after
attaining 60 years of age or 35 years of pensionable service, whichever is earlier.
3. The provision of (i) and (ii) of the statute is with no discrimination to established
requirements for judicial officer and academic staff of institutions who retire at 65 and 70
years respectively.
4. Provided the officer would have attained the retirement age of 60 years or 35 years of
service, whichever is earlier.
5. A Director shall unavoidable retire upon serving eight years of the post; and
6. A Permanent Secretary shall hold office for four years which can be further renewed for
additional four years, depending on satisfactory performance and no more.
Other grounds for compulsory retirement of an employee as identified by Ezeani (2011).
include the under listed:
1) On the advice of properly constituted medical board, certifying that the officer is no
longer mentally or physically capable of carrying out the functions of his office,
2) On total or permanent dis-enablement while in service
3) An abolition of his office as a result of re-organization in the department
4) If he is required by the employee to retire on the grounds that his retirement is in the interest
of the establishment.
Flippo was quoted in Agulanna (2003) that “with a society built on a work ethic, the move from
a recognizable productive work role on one day to a role-less role the next day, has stimulated
the belief that retirement gives rise to mental and physical disorder and, at times, untimely
demise; to many, work is life and idleness is a living death”.
Retirement represents separate things to numerous people. To some it can be exciting, delightful,
thrilling, something to look forward to while to some it means the end of the road, psychological,
or living death etc.

Types of Retirement Plans : According to The Employee Retirement Income Security Act
(ERISA), there are two types of retirement plans: Defined benefit plans and Defined
contribution plans.

a) Defined benefit plans: According to defined benefit plan, a specified monthly benefit are
promised to employee at retirement. The defined benefit plan state this promised benefit as
an exact currency (Dollars) amount, such as $100 per month at retirement. Or, more
commonly, it may calculate a benefit through a plan formula that considers such factors as
salary and service - for example, 1 percent of average salary for the last 5 years of
employment for every year of service with an employer.
b) Defined contribution plans: A defined contribution plan is different from the previous
benefit plan that is the defined benefit plan which makes promises at monthly basis at
retirement. In these plans, the employee or the employer (or both) contribute to the
employee's individual account under the plan, sometimes at a set rate, such as 5 percent of
earnings annually. These contributions generally are invested on the employee's behalf.The
employee with always receive the investment balance in their account which is based on
contributions plus or minus investment gains or losses. The value of the account will
fluctuate due to the changes in the value of the investments.
Examples of defined contribution plans
i. A Simplified Employee Pension Plan (SEP) : This is a relatively uncomplicated retirement
savings vehicle. A SEP allows employees to make contributions on a tax-favored basis to
individual retirement accounts (IRAs) owned by the employees. SEPs are subject to minimal
reporting and disclosure requirements. Under a SEP, an employee must set up an IRA to
accept the employer's contributions. Employers may no longer set up Salary Reduction
SEPs. However, employers are permitted to establish SIMPLE IRA plans with salary
reduction contributions. If an employer had a salary reduction SEP, the employer may
continue to allow salary reduction contributions to the plan.
ii. A Profit Sharing Plan or Stock Bonus Plan : This is a defined contribution plan under which
the plan may provide, or the employer may determine, annually, how much will be
contributed to the plan (out of profits or otherwise). The plan contains a formula for
allocating to each participant a portion of each annual contribution. A profit sharing plan or
stock bonus plan may include a 401(k) plan.
iii. A 401(k) Plan is a defined contribution plan that is a cash or deferred arrangement.
Employees can elect to defer receiving a portion of their salary which is instead contributed
on their behalf, before taxes, to the 401(k) plan. Sometimes the employer may match these
contributions. There is a dollar limit on the amount an employee may elect to defer each
year. An employer must advise employees of any limits that may apply. Employees who
participate in 401(k) plans assume responsibility for their retirement income by contributing
part of their salary and, in many instances, by directing their own investments.
iv. An Employee Stock Ownership Plan (ESOP) is a form of defined contribution plan in which the
investments are primarily in employer stock.

v. A Cash Balance Plan is a defined benefit plan that defines the benefit in terms that are more
characteristic of a defined contribution plan. In other words, a cash balance plan defines the
promised benefit in terms of a stated account balance. In a typical cash balance plan, a
participant's account is credited each year with a "pay credit" (such as 5 percent of
compensation from his or her employer) and an "interest credit" (either a fixed rate or a
variable rate that is linked to an index such as the one- year treasury bill rate). Increases and
decreases in the value of the plan's investments do not directly affect the benefit amounts
promised to participants. Thus, the investment risks and rewards on plan assets are borne
solely by the employer.