Hello,
Sorry for this rather silly question. Can you please clarify my understanding, in general, on who pays for contributions in a DC vs DB pension scheme?
DC scheme - The contributions are paid for by the member (some x%) and by the employer (some y%). There could or could not be relationship between x and y%.
DB scheme - The contributions are paid for by the sponsor, depending on the "funding" level. If the scheme is funded, then the employer will calculate the funding required (I can think of this is as reserves in the context of Life insurance) as the PV of future defined benefits it needs to pay + PV of expenses that will be incurred in administrating the scheme. If the scheme does not have enough funding, it needs to contribute? But this means, the contribution is determined and made periodically.
Am I thinking this right, directionally at least?
The primary reason I started to think about this question was the case study 2 in assignment 6. In this question, company X had DB in place, and its contribution rate to the scheme increased significantly over the last 20 years. Which encouraged me to get my fundamentals right!
Regards,
Minal
Last edited by a moderator: Mar 28, 2019