Question

Why is it that over the past several years employers have been moving from a defined benefit plan to a defined contribution plan?

Answer 1

The employers have shifted from defined benefit plans to defined contribution plan. Defined benefit plan is the amount of money that the company will pay to its employees after the retirement of the employee. It is lije pension fund. But over the past several years companies have understood that as the life span of people is increasing and many employees are opting to retire earlier than usual, they have to spend more money on the payment of pension amount. This was becoming very expensive for the company and they began to consider it as an additional expense. Thus, the companies have opted out of defined benefit plans and instead chosen defined contribution plans. In this the employee is responsible for his or her retirement plans. They save a certain amount of money for the time period after retirement and an equal amount of money is contributed by the company as well. This is a lesser burden as an employee will be able to save only upto a certain limit and the company has to contribute the equal amount only.