Question

how different types of pension operate

Answer 1

The two types of pension plans are :

• Defined benefit pension plan
• Defined contribution plans

Defined benefit pension plan :

In this plan, the employer guarantees the employee a guaranteed sum of money upon retirement. In this plan, the employer is liable to pay , a specific amount of funds to the employee upon retirement, and if the assets are not sufficient enough to pay then the company is liable to make the payments.

Defined contribution plans:

In this plan, the employer is liable to make specific amount of contributions to the plan and the resultant amount in the plan depends upon the investment performance. The liability of the employer ends with making contributions. As this type of plan is less expensive, companies are moving to this plan, other than the defined benefit plan.