A defined contribution pension plan or a defined benefit plan?
You can take the initiative to offer a pension plan to your employees or you can act on a request from an employees'
Two plan types
Defined contribution plans
The amount of the contributions that you pay into the pension (and that paid by your employees, if they contribute) is set in advance.
- The risk related to fluctuations in the pension funds rate of return are borne by the members and beneficiaries.
- Your participation is limited to the contributions that you are required to make under the plan provisions.
The amount of a member's retirement income depends, among other factors, on the total amount accumulated in the member's account, that is:
- contributions that you made as the employer
- member contributions made by the employee (if required to contribute)
- interest credited to contributions.
Defined benefit plans
- In a defined benefit plan, the pension fund is made up of the employer contributions, which you make, the member contributions made by your employees (if required to contribute).
- The cost of benefits and the contributions to be made to the pension fund are determined by an actuary.
- The amount of a member's retirement pension generally corresponds to a percentage of his or her salary, multiplied by the number of years of credited service under the plan.
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