ployers to shift risk bearing. It is commonly thought that workers bear all the risks in DB plans and employers bear the risks in DC plans, but for both types of plans, that is frequently not true. In DC plans, workers can shift some of the risk to insurance companies. In Chile, some of the DC plan risk is borne by the government. In addition, some of the DC plan risk can be shifted back to employers, who can be sued for the mismanagement of DC plans. Workers bear risks in DB plans arising from risks to the employer and, for funded plans, from risks associated with the assets in which the plan invests.
The relative riskiness to workers of DB and DC plans depends on the particular circumstances being compared. For workers in financially weak firms with underfunded DB plans that do not provide post-retirement costof-living adjustments, DB plans may be fairly risky, while for workers in financially secure firms that provide money-purchase DC plans that are invested in insurance company-guaranteed products, there may be little risk. Thus, in some cases, DC plans are less risky to workers than DB plans.
The material in this chapter is the responsibility of the author and does not represent the position of any institution he is associated with.
By contrast, in defined-contribution plans, the eventual benefit the worker receives depends on the amount contributed to the plan and the rate of return received on the pension plan investments. For example, the worker could have a plan where the employer contributes 5 percent of salary. This amount would be deposited in an account for the employee, along with the investment earnings on the assets in the account. At retirement, the worker would have an account balance that he or she could receive as a lump sum or convert to an annuity.
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Publication information: Book title: International Perspectives on Supplementary Pensions:Actors and Issues. Contributors: Emmanuel Reynaud - Editor, Lucy Aproberts - Editor, Bryn Davies - Editor, Gerard Hughes - Editor. Publisher: Quorum Books. Place of publication: Westport, CT. Publication year: 1996. Page number: 94.
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