The disadvantages of defined benefit pension plans for employees are Benefits are not paid normal retirement, no investment control
What are the pros and cons of defined benefit pension plans?
Pros:
- The Pension Benefit Guaranty Company, if the plan is insured, ensures the majority, if not all, of the earned benefit in the event that the employer is unable to pay.
- Offers potential cost-of-living increases
- Deferred tax assets
- Professional money managers oversee the management of assets.
- Absence of employee contributions negates employee investment risk.
- The amount of a retirement benefit is known in advance.
- There are possibilities for survivors.
Cons:
- Certain plans don't permit lump-sum payments.
- Benefits are typically not paid until the age of normal retirement.
- Usually won't benefit a worker who quits their job before retirement
- Employee has no investment control
- Growth may be less than that of a defined contribution plan if there are no employee contributions.
- more expensive for the employer to administer
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