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Defined Benefit and Defined Contribution Pension

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1. Discuss the relative advantages and disadvantages of defined benefit and defined contribution pension schemes from both the employee and employer perspectives.

2. How do you foresee the future use of pensions within organizations, both public and private?

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Solution Summary

This solution provides information regarding the advantages and disadvantages of defined benefit and defined contribution plans. Additionally, this solution discusses the future of pension plans for public and private organizations.

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DISCUSS THE RELATIVE ADVANTAGES AND DISADVANTAGES OF DEFINED BENEFIT AND DEFINED CONTRIBUTION PENSION SCHEMES FROM BOTH THE EMPLOYEE AND EMPLOYER PERSPECTIVES. 

There are so many advantages and disadvantages of both defined benefit and defined contribution pensions schemes. Many organizations and employees have personal preferences regarding the use of either type of pension scheme, that's why there are so many differences between organizations. Frankly, I know of a number of organizations that provide both defined benefit and defined contribution pension schemes and thus on plan being more prevalent is not commonly known. With that being said, research indicates that defined benefit and defined contribution pensions are more common than IRAs.

One of the best websites I have found information regarding this topic on is (cited below)- http://www.myfrs.com/pdf/FRSPlansAdvantagesandDisadvantages.pdf.

Please note that it is very difficult to find information regarding the advantages and disadvantages from an employer perspective of the strengths and weaknesses of these plans.

To more fully understand the differences between these plans, not related to the advantages and disadvantages, I have copied two posts from the Internet regarding these unique plans. Please read them to better understand the work below. Remember, you do not need to cite these paragraphs in your work, because these are just general FYI facts.

Source: http://uk.answers.yahoo.com/question/index?qid=20100830024635AASCxzw.

"Defined Benefit plans were created decades ago when workers tended to stay with the same company for life. The companies with this plan would tell their loyal employees that when they turned 65, the company will pay them a monthly amount from the pension funds until the employee dies. These plans are out of fashion at the moment because hardly anyone works at the same place for 40 years anymore. And if you left or were fired you got nothing. And if the company fails to put enough money aside to cover all their retired employees for life, you may get a fraction of what you were promised."

"Defined contribution pension plans are those that spell out how much you can contribute of your own money and how much the employer can and will contribute. There are ...

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