Defined Benefit (DB) Retirement Pension
Defined retirement benefits for employees; Asset management profits for employers
Under DB retirement pension, employees’ retirement benefits are defined in advance, and the company reserves the fund for paying retirement benefits in a bank.
Employees can receive their retirement benefits as a lump-sum allowance or a pension after retirement.
The company is responsible for the management of the reserve, and its contribution amount differs according to its management of the reserve.
Outline
| Contribution | Calculated by multiplying the retirement benefit liability by the minimum (mandatory) reserve ratio |
|---|---|
| Payer of contributions | Employer(company) |
| Investment instruction | Employer(company) |
| Limitation on the investment | No direct investment in stocks, ceiling on investment in risky assets |
| Level of retirement benefits | The final wage level determines the retirement benefits (the final-month average wage X no. of years served) |
| Payment method | Lump-sum allowance or pension (pensions will be paid to a subscriber aged 55 or above, whose contribution period is 10 years or more, and the pension payment duration will be 5 years or more.) |
| Collateral loan | Should meet legal requirements (house purchase for non-homeowners a home, over 6 months of medical treatment of the relevant person and his/her family, personal revival, bankruptcy, etc.) |
- The pension accounting method is a method by which, by assuming a wage increase rate, discount rate, and retirement rate, the future payment of retirement benefits is estimated, thus calculating the retirement benefit liability and contributions.
DB system advantageous to the following companies
- Companies with a high wage increase rate
- The final wage level determines the retirement pay. So the higher the wage increase rate is, the more advantageous it is for employees.
- For companies, the internal reserve is the same as the level of retirement benefits.
- Companies with a high stability
- Only over 60% of the retirement benefit liability is required, so if the company is financially sound and highly stable and it can guarantee the payment of the remainder.
- Companies that want to improve their liability ratios
- The external reserve is deducted from the retirement benefit reserve, thus improving the debt ratio.
- Companies where the relevant staff wants to focus on retirement pay work.
- Similar to the management method of the existing internal reserve system or retirement trust (insurance)
