Institutional Investment Essay Example | Topics and Well Written Essays - 2000 words - 1

Institutional Investment - Essay ExampleThe discussion will, however, start by providing background information on the two plans.These plans are abstractly simpler and expect the employer (and in some cases the employee) making regular contributions to the retirement account of the employee. The amount of contributions is predetermined, usually a specified fraction of the salary. This fraction is, however, subject to alterations in the feed in of the employees career. In this plan, the both contributions are tax-deductible although the investment income accumulates tax-free. In most cases, the employee decides on his/her choice of account investment. This may include investing in run markets, bonds or any security that pleases them. At retirement, the employee can either receive an annuity or a lump sum, and the size of this money depends on the abide by of the accumulated funds in the employees retirement account (Poterba et al., 2007). The employee bears the risk of their inves tment and thus the employer has no any extra obligation beyond alter to their employees retirement plan account. The valuation of defined contribution plans is simple and involves measuring the market hold dear of the assets created in the retirement account. In most cases, the employee is command in their personal financial planning by their defined contributions plans sponsor (Clark 1999).Unlike the defined contributions plan which focuses more on the value of retirement accounts created assets, defined benefits plan focuses on the flow of benefits received by the employee at retirement. Typically, a defined benefits plan uses the employees remuneration history and the years of service as the determinants of the value of the benefit (Huberman, Iyengar & Jiang 2007). Upon retirement, the employee receives a defined monthly amount that is guaranteed for their life and that of their spouse. In some cases, the plan allows agency