Riscario

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)
  • must liquidate by age 69 and buy a life annuity, LIF or LRIF

• 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
  • buy a life annuity or
  • transfer of the funds to a LIRA or LIF