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Complexity of defined benefit versus defined contribution

Distinguish between a defined benefit pension plan and a defined contribution plan. Why does a defined benefit plan present far more complex accounting issues than a defined contribution plan?

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A defined benefit promises a certain pension upon retirement, usually some percent of salary times years of service (although the promise formula can change from plan to plan). So, there is a promise to meet a certain annuity (set amount each period) for the life of the participant. There is no promise to set aside certain funds or any set amount for ...

Solution Summary

Pension plans can make your eyes roll but here it is simply explained in everyday language. Suitable for novice to expert. Three paragraphs.