Posted On: 02-04-2025

TYPES OF PENSION PLANS.

They can be categorized into two; a Defined benefit plan and a Defined Contribution plan. Others are; hybrid pension plans and specialized pension plans. Let’s break it down;

Defined Benefit plans (DB)

Employer-managed; guarantee is upon employer, of payout upon retirement. 

Formula-Based; calculated based on salary history, years of service and a fixed percentage.

Risk; employer bears investment risk.

Examples;

Traditional pension plans; provide fixed monthly benefits after retirement. 

Cash balance plan; employees have a hypothetical account with guaranteed returns. 

Defined Contribution Plans (DC)

Employee and employer contribution; employees contribute a part of their salary matched with the employer. 

Market-Dependent; retirement benefits depend on investment performance.

Risk; employee bears investment risk.

Others;

Hybrid Plans 

Combines features of DB and DC plans. 

Examples;

Cash Balanced Plan; elements of both traditional and DC.

Target Benefit plans; mix of DC and pre-set benefit plans.

Government and Social Security plans 

Funded through payroll taxes and provided benefits upon retirement. 

Guaranteed Income Annuities (GIAs) 

Provide a steady income stream for life.

Multi-Employer Pension Plans (MEPPs)

Used by unions and multiple employers.

Self-Employed and Small Business Plans 

SEP IRA, SIMPLE IRA, Solo 401(k).

Join us at ALL SAINTS CATHEDRAL on 5th APRIL for a talk on how to use NSSF/Pension to save on tax.