What is ‘Variable Benefit Plan’
A type of retirement plan in which the payout changes depending on how well the plan’s investments perform. Variable benefit plans, also called defined contribution plans, allow the plan holder to manage his or her own account. By contrast, a defined benefit plan provides the plan holder with predetermined payments upon retirement that do not change and which are based on an eligibility formula rather than on investment returns.
Explaining ‘Variable Benefit Plan’
Variable benefit plans shift investment risk from the employer to the employee. It is possible that the employee will end up with less money from a variable benefit plan if he makes poor investment choices. However, he also has the power to make superior investment choices and end up with better benefits. Therefore, the ability of the employee to make smart investment decisions is critical in variable benefit plans.
Further Reading
- Evaluation of financial aspects of a retirement benefit plan – patents.google.com [PDF]
- Investment and financing constraints: Evidence from the funding of corporate pension plans – onlinelibrary.wiley.com [PDF]
- A financing explanation for overfunded pension plan terminations – www.jstor.org [PDF]
- The impact of taxes on corporate defined benefit plan asset allocation – onlinelibrary.wiley.com [PDF]
- Replicating default risk in a defined-benefit plan – www.tandfonline.com [PDF]
- Capitation and fee-for-service dental benefit plans: economic incentives, utilization, and service-mix – www.sciencedirect.com [PDF]
- United States Pension Benefit Plan Design Innovation: Labor Unions as Agents of Change – books.google.com [PDF]
- Incentives and disincentives for financial disclosure: Voluntary disclosure of defined benefit pension plan information by Canadian firms – www.jstor.org [PDF]
- An empirical comparison of published replication research in accounting, economics, finance, management, and marketing – www.sciencedirect.com [PDF]
