Thread: Economics Strikes dont always work.
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Old 11-15-2012, 04:21 PM   #56
Amnorix Amnorix is offline
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Quote:
Originally Posted by Dallas Chief View Post
Not sure what a defined contribution plan is, like a 401k? It said pensions, so I assumed that is exactly what it was, a pension solely funded by the employer. Something I lost many years ago, as did many of my peers, post 9/11. Like you though I am unclear as to what they are cutting out from these baker fellows. I was just speculating that it was a traditional pension. I could be wrong though, of course.

Not a 401(k), which is a separate account under the tax code which may or may not involve employer contributions/matches.

I'm no expert, but as I understand it, fundamentally there are two types of pension plans -- defined benefit and defined contribution. Both are either wholly or mostly funded by the employer, most of the time.

A defined benefit plan is the old school manufacturing section pension, which now mostly only exist through government jobs. It basically says that upon reaching certain targets/thresholders (years worked, minimum age, etc.) that you will received X dollars for the rest of your life, no matter how long you live. The employer is obligated to fund the plan thick or thin to ensure that you continue getting paid long after you have retired. These plans are absolutely horrible to the economics of any business, and to the government. As the population ages, they will increasingly strangle those few entities, and the government, that still has them.

A defined contribution plan is a plan that simply says that the employer will fund X dollars into the plan for each year you work, with X variable based on percentage of pay, years worked, or whatever. Then, when you hit the necessary milestones (age etc.) you may draw out of that plan certain amounts. This system actually makes sense, economically, for the employer. First, there is no oblgiation to fund for RETIRED workers (i.e. paying for those who give you nothing). Second, you can easily budget for it. You know that it's a perk for your employees, like any other, and you can calculate what it will cost. Defined benefit plans, however, are guesstimates at best, based on how long your employees may live, etc.
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