Differences along with advantages and disadvantages of both
- A defined contribution plan provides an individual account for each participant. The benefits are based on the amount contributed and are also affected by income, expenses, gains and loses.
- A defined benefit plan promises the participant a specific monthly benefit at retirement and may state this as an exact amount. Monthly benefits are calculated through a formula that considers a participants salary and service. Unlike defined contribution plans, the participant is not required to make investment decisions. A defined benefit plan is sometimes referred to as a fully funded pension plan.
Advantages of Defined Benefit Plans
- Guaranteed retirement income security for workers
- No investment risk to participants
- Cost of living adjustments
- Not dependant on the participant’s ability to save
Disadvantages of Defined Benefit Plans
- Difficult to understand by participant
Advantages of Defined Contribution Plans
- Participants have a certain degree of how much they choose to save
- Can be funded through payroll deductions
- Participants can benefit from good investment results
- Easily understood by participants
Disadvantages of Defined Contribution Plans
- Difficult to build a fund for those who enter late in life
- Participants bear investment risk
We from Doorneweerd Assurantien have the skills and knowledge to inform you what may be the best for you or your company when providing a pensionplan to your Dutch employees.