< Defined benefit superannuation plan
Accounting

How a defined contribution superannuation plan differs from a defined benefit superannuation plan?

Difference between defined contribution superannuation plan & a defined benefit superannuation plan

Under a defined contribution superannuation plan the employer pays fixed contributions into a fund. Employees’ benefits are a function of the level of contributions paid and the return achieved by the fund on the investment of plan assets. The employer has no obligation to make further payments if the fund is unable to pay all the benefits accruing to members for past service.

In a defined-benefit superannuation plan, the benefits received by members on retirement are determined by a formula reflecting their years of service and level of remuneration, rather than the performance of the fund. The employer has an obligation to pay further contributions if the fund is unable to pay members’ benefits.

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