Page 5 - Group Insurance and Retirement Benefit IC 83 E- Book

Commissioners, who police the maximum benefits that can be provided. It must be set up

under a trust, which has the effect of legally separating the assets of the pension scheme
from those of the employer.

Employee contributions are allowed, at the same rates as those mentioned below in the
context of defined contribution schemes. It is usual for employees‘ compulsory

contributions to be fixed as a percentage of their pensionable pay. The employer then
pays the ―balance of cost‖ – the difference between the employees‘ total contributions

and the contribution required to maintain the benefit promise.

The employer must make a ―meaningful‖ contribution to the scheme. See Defined

Contribution schemes, below. The test is applied to employer contributions on a lifetime

basis in defined benefit schemes, whereas it must be met year by year in defined
contribution schemes.

Other Features

Apart from retirement pensions, defined benefit schemes usually include the option for
the retiring employee to exchange some of his/her pension for a lump sum. Lump sum

benefits for dependants on death are common features. Many schemes also provide

pensions payable to spouses and/or other dependants.

HOW DOES A DEFINED CONTRIBUTION SCHEME WORK?

Unlike the defined benefit scheme, the defined contribution scheme promises only that a
certain level of contribution will be paid and the pensions to come from the scheme are

not defined or promised.

How Is The Contribution Fixed?

Generally, the employer‘s contribution is decided in advance by the employer. Employee
contributions will be in addition to the employer‘s fixed rate of contribution.