There are many different types of pension plans available to employees across the globe. These programs are often based upon the idea that an employer will match an investment put in by a worker over the course of a career. For instance, 401(k) plans are matching systems that are an important part of any employee benefits program. However, a less-popular but still effective option is called a defined-benefit (DB) pension plan, and you should consult your employee benefit services to see if this option is right for you.
A DB initiative is one of the few types of major pension plans, and is geared around an adjustable formula that includes a worker's purchasing and payment history, age, and length of employment. This is different from a 401(k) because a company does not have to match what an employee places into a retirement account, but merely has to follow the aforementioned formula.
Recently, the C.D. Howe Institute published a report on the winners and losers when a company implements a DB plan. According to The Wall Street Journal, the average plan is more effective for workers with higher wages and growth rates, because a slow increase in salary might mean that you can lose money in a DB plan.
"The winners are high-flying employees who are likely to enjoy pensions that, at retirement, exceed the value of accumulated employee and employer contributions," said report author Geoffrey Young, "while the losers are those who would be better off if they simply received the value of their contributions plus interest, rather than relying on the plan."
Make sure to sit down with employee benefits consulting professionals to ensure that a DB plan is the best possible course to take.
