Asked by Richard Sullivan on Jul 26, 2024
Verified
Compare and contrast the risks to the employee in regard to defined-contribution and defined-benefit pension plans.
Defined-Contribution
A type of retirement plan where an employer, employee, or both make contributions, but future benefits depend on investment performance.
Defined-Benefit Pension Plans
Retirement plans where the employer guarantees a specific retirement benefit amount based on factors such as salary history and duration of employment.
- Differentiate among various pension plan models and identify their distinct features.
- Assess the efficiency of various benefits schemes and the factors involved in their deployment.
Verified Answer
ZK
Zybrea KnightAug 02, 2024
Final Answer :
In a defined-benefit pension plan, retiring employees are guaranteed a particular payment level (i.e., the retirement benefit is "defined"). However, in a defined-contribution pension plan, the only guarantee to employees is that the employer will contribute a set dollar amount on their behalf to the pension plan (i.e., the contribution is "defined"). While the pension benefits under a defined-benefit plan are fixed, the pension benefits of the defined-contribution plan vary according to the success of the plan's investments (i.e., superior investment decisions will yield greater pension payments than mediocre or poor decisions).
Under the defined-benefit plan, retiree risk is largely limited to whether the fund is properly funded and whatever effects inflation will have on their fixed pension cheques. Under the defined-contribution plan, retiree risk is associated with the general risks and rewards of investments, the quality of investment advice, and the risks commonly associated with the defined-benefit plans.
Under the defined-benefit plan, retiree risk is largely limited to whether the fund is properly funded and whatever effects inflation will have on their fixed pension cheques. Under the defined-contribution plan, retiree risk is associated with the general risks and rewards of investments, the quality of investment advice, and the risks commonly associated with the defined-benefit plans.
Learning Objectives
- Differentiate among various pension plan models and identify their distinct features.
- Assess the efficiency of various benefits schemes and the factors involved in their deployment.
Related questions
Because of Added Expenses and Complicated Governmental Rules, Defined-Benefit Pension ...
Defined-Benefit Plans Are Declining in Use in Canada
In a Defined-Benefit Plan, the Retirement Benefit Is Determined According ...
Under the Provisions of a Typical Defined Benefit Pension Plan ...
Which Type of Pension Plan with Fixed Payouts Is Experiencing ...