What pension plan offers the most advantages? Defined Benefit or Defined Contribution?

Question

Feel free to offer your own opinion about either plans and what you prefer.

Answer 1

The only real way to tell which is advantageous is to do a mathematical comparison of specific plans. But since most people do not have the knowledge to do this, here are some general guidelines:



Defined Benefit is generally better for the employee. The company pays for most or all of it. It is usually especially good for older employees who have accumulated a lot of service with the company.



Defined contribution is generally cheaper for the company, but gives the company less flexibility in making contributions and managing the money in the plan. It is also often better for younger employees with less accumulated service. All else being equal, you are better off with this because you get to control how your money is invested in the plan. But because of this, most companies give you less money in a defined contribution plan over time than they would give you in a defined benefit plan.



If you are looking for a job and comparing benefits, I would suggest that defined benefit is usually a sign of a stronger benefits package. However, keep in mind that most defined benefit blans have been terminated or converted to defined contribution and there is no guarantee that a plan in place today will be there tomorrow.

Answer 2

"I think the best pension plan for most organizations lives somewhere between the traditional DB

plan and a traditional DC plan or no plan at all. A plan in between shares some--but not all-- of

the risk and the reward in the plan with members. Where in between will depend on the

organizations’ employee base and view of why they have a pension plan"

Answer 3

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