Defined contribution pension plan is the new type of pension system which allows plan holders to select investment products by themselves and fix amount of money received based on the result of the investment while the company bears the pension premium. The system is expected to complement the public pension system.
?Defined contribution pension plan is the useful system “for the support of retired employees as a part of benefit package”, “for the introduction of appropriate pension plan to the company”, “for the elimination of concerns about the fluctuations of expenses due to shortage of a pension reserve” and “for securing talented human resources”.?
◆Advantages of defined contribution pension plan?To plan holders?
- having high portability on job change
- enabling to clarify details of pension assets by plan holder?
- having option on investment activity and proportion of assets?
- having the possibility to increase the pension benefits if the investment goes well?
- having choice of financial investments based on life plan?
- applying deductions of public pension etc and deduction of retirement income for lump-sum payment?
- short grant of vesting for company contribution (at least over 3 years of service)?
To company
- No obligation to additional contribution?
- No requirement of accounting based on projected benefit obligation?
- treatment of company’s plan premium as losses?
◆Disadvantage of defined contribution pension plan
To plan holders
- unstable guarantee to future revenues after retirement due to the fluctuation of benefits based on the result of investment
- risk of pension management
- conservative investment with the emphasis on safety
- company’s weak motivation to improvement of management gains due to no risk at company side
To companies
- requirement of additional management such as keeping detailed records of investment activity by plan holder
- no reduction of pension premium even if the investment activity goes well
- necessity of investment training to plan holders
( May15, 2004 )
