9
Although
this
thesis
will
only
focus
on
defined
benefit
program, it is important to
distinguish
the
differences
between
the
two
pension
plan
programs.
Table
2.1
summarizes
the
main differences between Defined
Benefit Plan and Defined
Contribution Plan to provide a better understanding of Pension Fund.
Define Benefit Plan
Aspect
Define Contribution Plan
Pension benefit is based on the formula
that
has
been
decided
on
the
pension
fund regulation
Pension Benefit
Pension
fund
benefit
depend
on the
amount of
the
accumulated
contribution from
the
result
of
investment until
the
participant stop
working, then
it
will
be
traded
with
insurance company annuity
The value of contribution depends on
the fund adequacy to fulfill the pension
benefit liability based on the actuarial
calculation
Contribution
The value of employer contribution
from the participants contribution has
been set in the Pension Fund
regulation
PSL is recognized and the funding is
entirely the responsibility of the
employer.
Past Service
Liability
(PSL)
No PSL
Investment guidelines placed by plan
sponsor
Investment
Placement
Investment guidelines placed by plan
sponsor and the supervisory body
Plan Sponsor held responsible
Investment
Risk
Participants held responsible (deduct
pension benefit that will be received)
Needed since the beginning and
regularly to calculate the contribution
figure and fund adequacy
Actuarial
calculation
Not needed
Perform by the pension fund
Pension Benefit
Payment
Perform by live insurance company
Continued
Relationship
between
Employer and
retiree
No relationship
Table 2.1 Difference between PPMP and PPIP
Source: Tunggal 1999. p.15-16
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