The Two Key Types of Pension Plan Audits Explained

Pension plans can be classified as defined benefit (DB) or defined contribution (DC). A DB pension plan audits guarantee a set retirement income for the rest of your life. Your wages and number of years of employment with your employer are typically factored into a calculation determining how much of a pension you will receive.

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In most plans, both you and your employer make contributions. Your company is in charge of investing the contributions to make sure there is enough money to pay all plan participants' future pensions. Your employer is responsible for covering any deficit in the necessary funds. A DC plan guarantees contributions but not retirement income. Usually, the plan receives contributions from both you and your employer. Your company might match a portion of your contributions. You must invest all donations for your savings to grow. The plan is comparable to an RRSP in this regard. You contribute to your account and the investment returns this money generated to determine the amount you have available for retirement. You create retirement income using the funds in your account when you retire. This can be accomplished by purchasing an annuity from an insurance provider, moving your funds to a locked-in retirement income fund (LRIF), or a comparable income vehicle made primarily for pension savings.