This insert explains the difference between defined benefit (DB) pension plans and defined contribution (DC) pension plans. It also notes the rather dramatic trend away from DB pension plans and toward DC pension plans.

1. In your own words, explain the advantages and disadvantages of DB and DC pension plans.

Defined benefit (DB) pension plans guarantee employees a certain annual income when they retire, while defined contribution (DC) provide no such guarantee; rather, the value of the pension upon the employee’s retirement depends on how much the pension fund has earned over the years.

2. Consider the following statement: Given low investment returns and increased life expectancy, a defined contribution plan is really the only type of pension that is financially feasible for companies. Do you agree or disagree with the statement? Defend your reasoning.