Question

Differentiate between a Defined Benefit and a Defined Contribution Plan. Which Plan do you think is more advantageous to an employee?

Answer 1

Defined benefit plan provides pre-defined retirement payments based on employee service period (using a formula) with employer. If retirement fund performs badly risk of payment is with employer but not with employee.

In case of defined contribution plan only the amount of employee and employer contributions are pre-defined based on a formula and salary levels. Amount of retirement benefits are not fixed. If retirement fund performs badly then employee may receive lesser retirement payments.

For an employee defined benefit plan is advantageous because he knows the amount of retirement payment and employee