What Type of Pension Plan Would you Choose?
ACC 306: Intermediate Accounting II
January 1, 2013
WHAT TYPE OF PENSION PLAN WOULD YOU CHOOSE?
“A corporation’s responsibility is to the shareholders, not its retirees and employees. Companies are doing everything they can to get rid of pension plans and they will succeed.” Ben Stein (brainyquote.com, n.d.). There are two different types of Pensions which are a defined contribution plan or as a defined benefit plan. Both are still in use today but the defined contribution plan is now the preferred type of pension offered by most employers. According to Spiceland, Sepe & Nelson “ Today, approximately two thirds of workers covered by pension plans are covered by defined contribution plans, roughly one third by defined benefit plans. This represents a radical shift from previous years when the traditional defined benefit plan was far more common” (Spiceland, 2011) In this paper I plan on explaining the difference between the two types of pension plans, how each one is accounted for by a company and what an actuary’s duties are in the process
The first type of pension plan is a defined contribution plan that most companies use today. A defined contribution plan is a retirement plan where a certain amount or percentage is set aside or allocated by a company as a benefit to the employee and both the employee and employer invest in these accounts. These accounts may be investments in the stock market however the type of investment fund is chosen by the employee and the interest earned will then be credited to this account and the future earning or losses are on the employee as the employer guaranteed their contribution. This type of pension is the most common type of plan because it requires the employer to pay less over the course of employee’s tenure with the company. The reason it cost the companies less money is because they only put in a set amount of money into the account for the employee....