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What are the advantages and disadvantages for defined benefit pension plan and a defined contribution pension...
What are the advantages and disadvantages for defined benefit pension plan and a defined contribution pension plan each compared to the other?
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Defined benefit pension plans:
It is a Pension plan which promises their beneficiaries a certain amount during their retirement.
Advantages:
1. The benefits during retirement are defined.
2. During the recession, the Defined benefit pension plans are useful because they give a guarantee of a certain benefit to the members.
Disadvantages:
1. The employer's contribution is not defined.
2. During Great market conditions, there is an upper limit to Amount the participants can get. It's not beneficial is the retirement happen during Great market conditions.
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.
Advantages:
1. The employer's contribution is defined.
2. During Great market conditions, there is no upper limit to Amount the participants can get. Its beneficial is the retirement happen during Great market conditions.
Disadvantages:
1. The benefits of the member during retirement is not defined.
2. During the recession, the Defined contribution pension plans are not useful because they don't give a guarantee of a certain benefit to the members.
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