Db vs Dc Pension System

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Defined benefit (DB) Defined contribution (DC) Advantages / disadvantages of both systems US and the pension problems CDC or Hybrid DB? Conclusion

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Pension premium

◦ Flexible ◦ Collective ◦ expressed in percentage of salary

Employer-sponsored retirement plan Too little funded in pension fund employer pays extra premium Overfunded  employer gets premium back or discount on premium;

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Risks are entirely under the control of the company Investment risk is collective Actuarial risks are bared collective; Costs are bared collective and can be lower because of scale advantages Economical risk (interest and inflation): bared collective;

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Retirement age: you get monthly payments (every month same amount) till your death

Risks are covered by employe r.

Employer makes contracts for to pay pension premium= Fixed amount for fixed period (f.e. 5 years)  NOT Employer-sponsored retirement plan Too little funded in pension fund employer pays nothing extra, so participant bear the risk; Overfunded employer doesn’t gets premium back or discount on premium;

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Risks are entirely under the control of the company Investment risk is individual; Actuarial risks are bared individual; Costs are bared individual Economical risk (interest and inflation): bared individual;

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Retirement age: you get certain amount (big amount) where you can buy an annuity with, for to pay monthly.

Risks are covered by employee.

Data from 2011

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No risk individually, the risks are collectively bared; Employer pays extra premium;

If you become age of 100 you get same monthly payment as when you were 70;

Incentives for early retirement

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From pension fund perspective:  Longevity and aging From employee perspective:  New company, new contract, new system

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It’s simple and easy measuring; More control

get to choose what types of investments you put your money into

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Portability

take the...