Benefits of Defined Supplemental pension plans :
The factors behind the present difficulties in Defined Pension Plans:
The imbalance between changes in assets and liabilities of pension funds
The asymmetry between the treatment of surplus and the pension fund deficits
The volatility of pension plans
International Financial Reporting Standards
Institutional and regulatory factors
The economic and social situation
Options that facilitate their adaptation:
Contribute to the sustainable recovery of the match between plan assets and liabilities, or obligations with respect to current and future retirees
The redistribution of risk sharing
Delaying the retirement age
The adaptation of the regulation on deficits and surpluses
The adjustment of investment strategies
Increased training of employees
A pension fund insurance fund
Benefits of Defined Pension Plans For Employees:
The advantage of this type of scheme for employees lies in the fact that the pension that will be obtained in retirement is relatively predictable. Recall that the pension is calculated using a formula set in advance based on the number of contribution years, salary or both.
This type of diet also offers employees a benefit that is due to the collective nature of the management of these savings. It allows, through pension funds, access to expert advice as well as management procedures and investment opportunities unavailable to individual investors.
Another advantage of this type of diet, important for employees is that, in the case of many schemes only the employer must increase its contributions to the pension fund to meet unfunded liabilities. Consequently, the financial risk resulting from a negative difference between the amount of commitments of a pension fund to its current and future retirees, on one hand, and financial assets that the fund holds to cope, to secondly, is borne by the employer.
Advantages of Defined Pension Plans for employers:
In the past, these plans could be self-financed from the surplus of the pension fund, paving the way for contribution holidays for the employer.
In the case of very large companies, some of the company’s profits could be transferred to the pension fund for tax purposes, thus opening the door for contribution holidays.
Finally, in a context of economic downturn and corporate restructuring, defined benefit plans have occasionally been used to grant the early retirement and avoid lay-formal footing.
Contributions to Defined Supplemental pension plans
Advantages for employers:
limit the financial liability of the employer in case of actuarial deficit of the pension fund. Indeed, one of the features is that the contribution paid by the employer is stable and predetermined.
The employer’s contribution may be relatively flexible to encourage employees to save.
Benefits for employees:
Each employee has an account in his name whose value is not likely to be challenged by the financial difficulties of the company or by a layoff. In addition, the employee retains their account when changing jobs. If he works for several employers, all can contribute to the plan. As such, a contribution plan defined benefit those who, for various reasons, change employer several times during their life.
– Supplemental pension plans are an important component of total compensation, as well as savings for employees because they occupy a significant share of retiree income replacement.
– At retirement: only source of income
– The future benefits, according to some, could disappear in the medium term private sector, while others say they could survive provided modifications to it.
– Two-thirds of the employees concerned are still covered by defined benefit plans.
– Some employers convert their defined benefit plan to a defined contribution plan, creating so-called hybrid regimes. (growing)
– Supplementary pension schemes should not disappear …
– Defined benefit plans remain attractive for employees, especially because they know in advance their retirement income and the employer assumes the financial risks. In addition, management fees are generally lower but higher and safer returns than other plans. They also allow a pooling of market risk and life expectancy. For employers, they remain useful tools for managing human resources.
Avenues that could maintain this component of compensation:
1: apply a series of measures to adapt pension defined benefit plans in a context marked by greater economic and financial fluctuations.
2: the development of “hybrid regimes”, including the payment of a predetermined pension to which would be added an amount from a money purchase account.
3: Development of defined contribution plans. In the private sector, there has also to the conversion of certain defined benefit plans to defined contribution plans.
It is therefore likely that supplementary pension schemes continue to exist in companies where they are offered. But one question remains: how to ensure that these plans are progressing to cover most of the employed population?