The traditional model of retirement was, Social Security, company pension and personal savings. How secure do you feel each of these are and what can we do to ensure retirement security for all individuals? Why are companies moving from pensions (defined benefit programs) to defined compensation programs? Please answer in 225 words or less and cite url or references used for class discussion.

ANSWER:

Al these are retirement benefits which every employee needs to have to understand. The feeling of security that the retirements benefits gives the employees is what makes him work in an organization for long periods of time. Retirement benefits are usually in the form of defined benefit programs and defined compensation programs. Though defined benefits programs were quite common there has now been a shift to defined compensation programs because the labor market has become very mobile and with the shifts in demography and industrial changes associated with employment , employees are going away from the DB plans. DB benefits cannot be shifted from one employer to another. The shift to DC has been perceived because of the regulatory environment in pension funds and the expected decline is long term interest rates, the risks associated in DB plans are very high and so financially no one wants to take the risk of this pension fund investment. It is also expected that DB plan costs are very high and there has been an increasing regulatory burden on recognition of the same.

Employers too prefer contributions to DC as the payroll deductions are predictable as they are linked to compensation and further more the balance sheet earnings get reduced thereby paving the way for less volatility on earnings over a long term..

http://groupbenefitsonline.ca/pensions-in-canada-defined-benefit-vs-defined-contribution/