Under a defined benefit plan, the ultimate pension amount is defined. For example, the plan may provide for a pension benefit equal to 2% of an employee’s earnings for each year of service. Assuming there are no changes in earnings and the employee has 30 years of service, the ultimate benefit payable at retirement is equal to 60% of earnings. The pension benefit may be based on the employee’s career earnings, or final earnings, which can either be the best five years of their career or the final three years.
Some plans are funded entirely by employer contributions, some by both an employer and employee contribution. The employee contribution is fixed while the employer contribution will vary based on the actuarial assumptions. An actuarial valuation must be performed every three years to determine plan liabilities.
Without professional help, choosing a plan can prove daunting for an employer. BFL CANADA experts will walk you through the process and provide the information and advice you require to make informed decisions about a plan.