A company has a contributory defined benefit pension plan covering all employees over the age of 30.
Question:
A company has a contributory defined benefit pension plan covering all employees over the age of 30. An analyst was quoted as saying:
Required:
1. What factors associated with defined benefit plans have led to the trend toward defined contribution plans?
2. Evaluate the attractiveness of defined contribution plans for employees.
Transcribed Image Text:
Defined benefit pension plans are really dead. Within 20 years, no companies in the private sector will be offering these plans and the public sector is just daft if they don't follow suit. Why, in the first four months of this year, I know of dozens of companies that have frozen or closed their defined benefit plans. They allow new employees access to only defined contribution plans. Many of these companies just make end- of-year grants to employees directly into their personal RRSP accounts, and allow-force-the employees to make their own investment decisions. Of course, with employees more mobile between companies and less likely to stay with one employer all their lives, it can be attractive. Some people just like to get their hands on the money!
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Requirement 1 A defined benefit plan places financial risk with the sponsoring company which is not ...View the full answer
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