There are two main types of employer pension plans:
Defined Contribution Plan
A defined contribution plan, or money purchase plan, is very similar to a regular Registered Retirement Savings Plan (RRSP). Both the employer and employee contribute to the employee’s pension account and, typically, the employee is allowed to make some decisions on various investment options. This way, the employee participates not only in the upside, but also the downside of any investment risk for monies that may be in the market.
Defined Benefit Plan
A defined benefit plan is a pension in which the retirement income benefit is calculated based upon years of service and salary level. You will have the option at retirement of choosing a single life (payable for your lifetime) or joint life (payable for your life and the life of your spouse) pension (annuity). As noted above, the employee is entitled to a certain monthly income upon retirement. Therefore, the company bears all of the investment risk.