By Foster Ann C.
Summarized by Yim
A worker's ability to maintain and transfer accumulated pension benefits when changing jobs is generally less of a problem in defined contribution plans than in defined benefit plans. An account is established in defined contribution plans for each participating employee. The employer and in some cases, the employee, make fixed contributions to the account. Benefits depend on contributed amounts and investment earnings. With comparable contributions and rates of return, a worker who switches jobs and leaves the funds in the plan of each organization could have the same benefits upon retirement as a worker with an identical salary history who worked for only one employer. In contrast, defined benefit plans use predetermined formulas to calculate retirement benefits. Benefits generally are based on salary and years of service with the employer sponsoring the plan. Portability provisions are not commonly found in single employer defined benefit pension plans. Portability provision in defined benefit plans generally cover assets, credit service or both. Portability of assets allows workers to withdraw accumulated pension benefits or transfer them to another retirement arrangement. Portability of credited service allows year of services with a previous employer to be included when determining pension benefits from a subsequent employer.
No comments:
Post a Comment