What type of pension plan would an employer want to offer, a defined contribution plan or...
What type of pension plan would an employer want to offer, a defined contribution plan or a defined benefit plan? Explain your reasoning behind your answer.
Homework Answers
In a defined benefit plan the employer decides upon a lump sum amount which they will pay upon retirement to the employee.The sum of money is determined keeping in mind the age, years of service and the salary that the employee has last drawn form the company.
In a defined contribution plan, the employer and the employee contributes a specific sum of money into the account till retirement. Upon retiring a large sum of money is deposited due to the contributions made by the employer and the employee. The sum of money accumulated depends upon the contributions made and the investment performance of the fund. The amount may also be small in the case if defined contribution of the economy is suffering a downturn.
The defined benefit pans are more costly for the employers than the defined contribution plans. Employees favor this plan because it is entirely funded by the employers.Most companies have completely eradicated the defined benefit plan.
An employer would want to offer employee contribution plan.
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