How is defined contribution perceived

Employers usually offer health insurance to their employees. This is part of tradition. This is part of what is an unwritten rule and what is expected of the employers by the employees even though they may not explicitly say so.

However, what employers are toying with is the idea of defined contribution vs defined benefit. There are several reasons why defined contribution vs defined benefit small business owners are considering. They are as follows :

  1. In a defined contribution health plan, the employer needs to do a lot of research as to the kind of coverage, the type of plan, the various levels of employees, the types of insurance providers and more.
  2. Most insurance providers do not open the entire gamut of policies, plans and coverage options to especially small business owners. Thus, the owner is literally stuck with a few options which he or she then needs to choose from.
  3. The employer also has to contend with the increase in annual premiums based on the amount of claims that have been raised during the year by the employees and therefore there is no fixed amount that can be budgeted for this expense.
  4. The employees feel shortchanged as they are not allowed to choose the insurance provider of their choice
  5. They may or may not be happy with the coverage that is being provided to them.
  6. They may resent having to go through the employer to raise their claims rather than just dealing with the insurance provider themselves.

defined contribution vs defined benefit small business

Due to all these factors, defined contribution health plans do not go down well with the employer or employee. Therefore, defined benefit is more advisable. This gives the employee to choose the provider of his or her choice and the employer just increases the taxable income of the employee. More can be read in articles such as