Why would companies opt to change from defined benefit retirement plans to a defined contribution?

Why would companies opt to change from defined benefit retirement plans to a defined contribution? What risks is the company trying to mitigate?

Expert Solution

Defined benefit pension plans:

It is a Pension plan which promises their beneficiaries a certain amount during their retirement.

Defined contribution pension plans:

It is a plan in which participants contribute a certain % of their payroll to their own retirement plan accounts, usually in form of a deduction in their payroll.

Companies opt to change from defined benefit retirement plans to defined contribution because The employer's contribution is defined & The benefits of the member during retirement is not defined.

In a defined benefit plan the benefits during retirement are defined and fixed, companies are trying to mitigate the fixed amount to be paid and transfer the retirement benefits as per the market conditions.

jeff jeffy answered 2 years ago

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