dc.description.abstract | Traditional DB pension plans are gradually losing their dominance in Kenya like
many other occupational pension systems of many countries. Over the past few
decades there has been a gradual shift towards DC pensions and, in some
countries, DC plans now account for the. majority of invested assets in private
sector occupational pension plans. The most frequently quoted reasons are: Cost
control, in the sense that an employer's obligation to a DC plan can be predicted
up front, based on the contribution formula used, easier administration for DC
plans, and difficulty in communicating the benefits provided by a DB plan. While all
these are legitimate reasons, they are all reasons from an employer's perspective.
Traditionally, the employer makes all decisions concerning retirement benefit
arrangements. The ultimate choice of benefits often reflects the interest of the
employer, even though Employee Retirement Income Security Act and the Pension
Benefits Acts stress that retirement plans are solely for the benefit of the
employees.
DB and DC plans have significantly different characteristics with respect to
their cost and the benefits offered to the employees. How well they succeed must
be judged in the context of their cost effectiveness and the benefit they provide to
the employee. In this paper, we intend to approach the subject from both the
perspective of the employee and employer welfare. We shall focus on the cost
involved in DB Plan and DC Plan. We will then also compare the values of benefits
they will provide to an employee. | en |