How Sharia Law is Related to 401 (K) Plan
Sharia law is a law that regulates the general conduct of the Muslim religion all over the world. It is a law that stipulated the code of conduct for all Muslim observers in their daily activities. The law governs the religious, economic, social and political aspects of all Muslims. Moreover, the law initiates the correct procedure that any Muslim believer should follow whenever undertaking any economic, ethical, moral, political or religious activity. Besides, the law provides for a disciplinary measure that would be taken by an individual who does not obey the provisions of the sharia law. On the other hand, the 401 (k) Plan is an idea of retirement saving that is implemented by an employer that initiates the investment and coordination of paycheck before any tax deduction. In this plan, the money owed to 401 (k) Plan is deducted before any tax is imposed on the salary. In addition, the 401 (k) Plan is a defined contribution that deters any employee from contributing to tax to the state or federal agency. Thus, no such tax is levied on an individual’s savings or money earned from investments until the point of retirement. This paper seeks to analyze how sharia law is related to 401 (k) plan. In doing this, the paper will use the religious regulations of sharia law and related them to the various investments opportunity in 401 (k) plan.
How the Sharia Law is related to International Business in Today’s World and 401(K) Plan
The 401 k Plan was initiated to cater for the welfare of employees upon retirement. This Plan was to encourage saving during the employment period until the retirement time. In addition, the contribution made by each employee was to be invested by a trustee and the proceeds from such investment be attributed to the employee upon the retirement period. As it may seem, the 401 k Plan was to be implemented by employees of all sectors of the economy. However, there was difficulty in implementing the 401 k Plan among the employees with Muslim background due to religious constraints. A number of issues have been raised concerning the practice of 401 k Plan and the general belief of the Muslim on the issue. This among other aspects, has led to diversification and restructuring of the general practice of 401 k Plan in order to accommodate the desires and requirement of the Muslims. In doing this, the sharia law was brought into context to help understand the real conflict between the Islamic banking system and the 401 k Plan. Since then, a number of similarities and differences have been identified, and the relation with international business in the recent world has been established.
The relationship between sharia law and international business in today’s world can be traced from the general practice of banking and conducting business activities worldwide. The sharia law has firmly categorized the kind of activities it considered fit for the venture by its believers and condemned a number of business activities that it deems unfit for practice by its believers. For instance, the sharia law has strongly condemned any activity that encourages pornography, gambling, sale of alcohol, prostitution and consumption of pork. Thus, any Muslim believer is discouraged from investing his or her money in any activity that is seen as promoting such acts (Jamaldeen, 2012).
The Sharia law also discourages getting profit from levying interest commonly known as riba and puts the threshold of such interest to 33 % especially when the business is in recession. Besides, it is illegal to uphold finds up to unacceptable limits as a way of earning interest. The same is the case with the 401 k Plan that encourages early retirement Planning so that not a huge part of the revenue from the funds of the employees. The Islamic law defines such deals Haram, meaning no deal and thus unacceptable in their religion. The 401 k Plan has stipulated certain guidelines as to how to get involved in pension schemes without getting into illegal business. However, the global business has seen the Islamic banking be incorporated into the world business through the banking window allowed by the sharia law. Mortgages and other forms of loans are being extended to the Muslims in a way that it does not violate the prohibitions of charging interest of remitting interest. This has led to the evolvement of a wide variety of options in the banking industry creating a lot of options to the 401 k Plan and the Islamic banking
In order to avoid conflict with the Islamic prohibition of taking or remitting any interest upon any saving or money lent, the sharia law in conjunction with the international business today has initiated the implementation of various alternatives of investment that give returns to the Islamic believers. Some of these options include the Amana Growth Funds, Exchange Traded Funds, and the Dow Jones Islamic Market International Index Fund. These international business investment avenues compile indices relating to Islamic banking, issue screening of stocks for individual and institutional investors among other obligatory advisory functions. This is the same case with the 401 k Plan that collects the indices of employees and screen various investments within the market before it commits the funds for the purposes of gaining profit. There has also been the idea of launching a crowdfunding site that is sharia compliant. This will be seen as another alternative that looks almost similar to 401 k Plan of collecting funds from several employees and investing it for future benefits of the contributors. These are among the new financial tool being championed by the sharia law just as the 401 k Plan and the global business is defending for a pull of funds through collaborative investment.
The primary aim of engaging in international business is to gain profit while taking into consideration of all the legal practices in the business field. The 401 k Plan also stipulates regulation that must be followed in the process of investing the contribution by members to the pension Plan. Similarly, the sharia laws provide for thorough screening to ascertain the compliance of all sorts of investments of any individual or corporate, member belonging to the Islamic religion. Conventional bonds that go against the prohibition of interest are not acceptable by the sharia laws. The most significant similarity is the way the 401 k Plan has helped build a good working relationship and niche with several professional bodies. International business has also created an extensive network of collaboration among banking institutions, organization, individuals and corporate entities. Similarly, the sharia law has forged a good affiliation with physician all over the world and various financial and visors to help fix the Islamic investment in compliance with sharia law (Ngalawa, 2012)
Baird, (2011), also notes that the notion of charging interest has been the major constraint between sharia law and the various investments option in 401 k Plan. These constraints led to the Islam avoiding any bond funds or mortgage as they were against the provisions of sharia law of charging interest. Moreover brokerage is seen as a means of creating a bridge between business entities and their clients. However, the sharia law strongly discourages this practice since it seems more of gambling and thus involves making money or interest from unethical practice. The Sharia law came up with an alternative of bridging the gap between the business entities and their clients without contravening the sharia laws. Thus, instead of going to brokers, they get involved in various activities that provide alternatives for meeting their clients and business partners with compliance to Sharia laws. This fosters the investment in an Islamic manner, resulting in the growth of business worldwide. The same is the case with the international business and the 401 k Plan (Hassan & Lewis, 2010).
According to Great-west Financial, (2014), the Islamic sharia laws allow business entities to provide accommodation options to its followers as a means of creating an enormous pull of savings from salaries. In this Plan, the employees are allowed to pursue religious practices in their deductions from employees, thus incorporating the Muslims into the savings Plan. Moreover, there are brokerage windows that have facilitated the litigation risks and investment options available in compliance with sharia laws. Just as the sharia laws may face difficulty in embracing the brokerage due to its prohibition of interest and income from such activities. Similarly, the international business and the 401 k Plan has faced the problem of higher fees, sophistication among the investors, confusion and compliance with requirements to disclose Labour fees. In addition, both Islamic Sharia laws and the international business encourage brokerage, but through different perspectives as asserted by Roemer, (1994). The 401 k Plan, for instance, will champion for brokerage through the limited investment opportunities that charge interest. On the other hand, the sharia law will provide brokerage window that allows investors to invest in alternative Plans as opposed to the 401 k Plans.
In order to overcome the religious constraints, employers and the sharia laws have allowed the introduction of funds that are in compliance with various religious practices in the world. Acceptable parameters have been put in place to ensure that funds that fit into the 401 k Plan and are in compliance with the Islamic sharia law are duly implemented. The inclusion of minimum hardship is thus eliminated in both cases and thus making them compliant with both Sharia laws and the international business requirements. The joint stand of both Sharia laws and the 401 k Plan has always been to review all alternatives in order to prevent any undue business hardship caused by religious practices. Besides providing investments that are Sharia compliant, Muslims can be provided with an opportunity to invest in company stocks. This will work well with the mission of 401 k Plan of adding value to the rewarding package of employees.
How the Sharia Law is related to international business in today’s world and a 401(k) Plan.
Baird, R. D. (2011). Religion and law in independent India. New Delhi: Manohar.
Great-west Financial, (2014). 401(k) Answer Book. New York: Wolters Kluwer Law and
Hassan, K., & Lewis, M. (2010). Handbook of Islamic banking. Cheltenham, UK: Edward Elgar.
Jamaldeen, F. (2012). Islamic finance for dummies. Hoboken, N.J: Wiley.
Ngalawa, H. P. E. (January 01, 2012). Banking instability and deposit insurance in low-income
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Roemer, J. E. (1994). A future for socialism in Islamic banking. Cambridge, Mass: Harvard