Skip to Main Content

DB, DC, and Something In Between: A Review of Common Types of Pension Plans


Pension plans are not all the same. In the world of registered pension plans – those that are under the supervision of either the federal or a provincial regulator and its minimum standards legislation – there are two basic kinds of plan design, and a third which is a hybrid of the first two.

A defined benefit pension plan – or “DB Plan” – promises a pension at retirement that is based on a formula. The formula is typically based on an employee’s years of service and a fixed or tiered percentage of the employee’s final average earnings. Depending on the DB Plan, employees may or may not make contributions. Employer contributions are based on actuarial recommendations about the cost of providing the promised benefits. It is the pension benefit on retirement that is defined in a DB Plan.

A defined contribution pension plan – or “DC Plan” – produces a pension on retirement based on the funds available in an account for an individual employee. The rate of contributions for the employer and the employee (if any) are fixed in a DC Plan, typically based on a percentage of the employee’s earnings. Contributions are invested and produce returns, sometimes based on individual member choices and sometimes on an aggregate fund rate of return. The money in the individual member account is used to purchase an annuity and provide a stream of income on retirement. DC plans are sometimes called “money purchase plans.” It is the contributions that are defined in a DC Plan, not the ultimate pension benefit.

A hybrid pension plan includes both DB and DC Plan features. It is common in such plans to promise the employee the greater of a pension based on a DB formula, or a percentage of the employee’s contributions plus interest. Alternatively, the employer contributions are used to provide a defined-benefit pension, and employee contributions provide a defined contribution benefit.

An employee’s pension is a important and complex part of their overall compensation. Regardless of the type of pension plan, there may be questions about member and/or employer rights and obligations, or concerns about how the plan is administered. We have a dedicated team of pension experts in Toronto and Ottawa who are available to assist unions, other employee representatives and individuals with pension issues. Don’t hesitate to contact us for assistance.