Question

• Discuss advantages and disadvantages of both retirement plans: defined benefit and a defined contribution.
• If you were allowed to only select one plan for your retirement among the above two retirement plans, which would it be and why?

Answer 1

Defined benefit plan:-

Advantage:-

1. Defined benefits

2.Employer contributes everything.

3. Beneficiary don't have to look after the plan about how it is being invested and how it is performing.

Disadvantage:-

1.Minimum service is required.

2.Sometimes they are not backed by unlimited guarantee in case of any adverse volatility and hence fails.

Defined Contribution Plan

Advantage:-

1. Flexibility in investment, ie investment depends upon the capacity of employee.

2. Tax saving advantage to employee.

Disadvantage:-

1. Require efficient management of funds.

2. Employees tend to avoid contribution as they are not worried about future

If there is an option to choose one plan, then I would personally choose Defined benefit plan because of less tension about the performance of fund and guaranteed payback.

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