Defined Contribution Pension Plan

also called a "Money Purchase Plan"

Employers often prefer Defined Contribution pension plans over Defined Benefit plans since risks are transferred to employees.

  • Pension Adjustment (PA) = employee contributions + employer contributions
  • advantages to the employer
    • employer contributions known precisely
    • lower cost
    • easier administration
  • employee make investment choices and bears investment risk → pension amount unknown
  • up to age 69, the employee can roll the funds into a locked-in RRSP (LIRA)
  • pooled contributions from employees and employers to provide pension income
  • the cost of the plan is known for both the employee and employer
  • investment returns are unknown → the value of the pension is unknown
  • employees choose the investments from the choices available (as with a self-directed RRSP)
  • at retirement, the employee can

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