Tags: Retirement | defined benefit | retirement plans | advantages

Advantages of Defined Benefit Plans

By    |   Wednesday, 26 August 2015 04:52 PM

Some view defined benefit plans as a strong and easy opportunity for retirement savings.

According to CNN, a DB plan is often a better deal for employees, because they are not required to put out money from their wages for benefits. That falls to an employer. With a defined contribution plan — like a 401(k) or 402(b) plan — employees must make contributions.

Employees also don't have to put effort into figuring out their retirement investments. Instead, noted FinancialWeb, "the company that provides the defined benefit plan is in charge of contributing to it and making the individual investment decisions. You will simply have to do your job, and then your retirement benefits will be waiting for you when you retire."

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Fewer companies are offering DB plans in recent years, CNN reported. Some employers, however, still offer both, CNN said, adding: "If you still have a defined benefit plan at your company, consider yourself lucky."

Defined benefit plans offer employees a specific retirement benefit provided by employers based on salary and years of service, financial services firm TIAA-CREF said.

Such DB plans can be funded solely by contributions from an employer or include employee contributions.

They offer little risk as the funds are managed by professional firms and also pooled, making the company assume the risk. Best of all, said TIAA-CREF, DB plans offer a lifetime income stream, allowing someone to have the security of knowing a financial plan for retirement is in place. Typically, benefits are calculated based on career earnings at the end of their work life.

According to Investopedia, DB plans typically offer stronger benefits than other retirement programs. They also take the responsibility for investment choices away from an employee.

Investopedia added: "Corporations tend to have a much longer time horizon than the life expectancy of employees. Therefore, it is believed that employers have a much greater capacity to absorb wide market fluctuations over various market cycles."

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Some view defined benefit plans as a strong and easy opportunity for retirement savings.
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Wednesday, 26 August 2015 04:52 PM
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