Pension advice needed

[variance]

I have been reading up on some pension plans, and need to make up my mine as my deadline is approaching to choose one.

Can anyone tell me about the main advantages/disadvantages between a "Defined Benefit Pension Plan" and a "Defined Contribution Pension Plan" ?

Which one do you recommend and why?

I am a young and recent university graduate who will likely, not stay with this same company until retirement... if that has any bearing on the above question.

[Xtrema]

Dude, read the fine print because those 2 plans are not standard industry terms. There isn't enough detail to help you.

But here's my guess. It almost sounds like "Benefit" is where you just get a pension from your company and "Contribution" is where you add more of your own $$$ on top and employer match your contribution.

Now is your pension plan is just $$$ goes toward your personal RRSP or a company pension fund?

If it's personal RRSP, go for "Contribution". RRSP is a flexible tax shelter. You can use RRSP for house down payment (up to $20K) and you can withdraw any time. You just have to pay taxes on your withdrawn amount.

The problem with employer pension plan is that if you leave, the money is most likely locked in LIRA which you can't access until you are 71 (and the government seems to raise that age every few years). So if you don't have confidence that you'll be there forever, don't do "Contribution" and just take the standard "Benefit".

Of course, this is just an assumption based on what I've seen how most pension plans function. There are other minor details that only you, your HR representative or your co-worker will know. Just ask them.

[rockym20]

Defined Benefit Plan - Your pention pays you a set amount, no matter what happens in the stock & bonds markets.

Defined Contribution Plan - Your employer puts in a set amount, and you hope to hell that your plan makes money over your life. If you can only invest in your company's stocks with the plan, you better hope your employer doesn't do an Enron or you will be screwed for your retirement.

If you are an astute investor, you can be better off with a Defined Contribution Plan. However, there is significant risk with it. Employers far prefer this plan as it has limited liability. With a Defined Benefit Plan, if the plan doesn't have enough funds to pay everyone, the employer has to kick in the difference.

I am on a Defined Benefit Plan, and would always take this if possible. That way, you have a guaranteed income for retirement. If you want to play the markets, just do this through RRSP contributions.

[TrevorK]

Originally posted by Xtrema
Dude, read the fine print because those 2 plans are not standard industry terms. There isn't enough detail to help you.

Those are standard terms when discussing pensions offerred by employers.

[TrevorK]

Here is a quick link to explain the difference:
http://www.pensionsatwork.ca/english...dition1_q1.php

What you will need to do is discuss with your HR people, as the different plans may have different rules. As well, keep in mind that just because you switch employers doesn't mean you have to switch pension plans, many are transferrable.