There are two main types of pension plans in the workplace today: defined benefit (DB) and defined contribution (DC). DB is the cream of the crop for workplace pension plans. DB pension plans guarantee workers a set amount of income in retirement based on a pension formula. DC pension plans on the other hand only guarantee workers the contribution level – the amount of pension workers end up with in retirement depends on how their investments perform.

Over the last few decades, we have seen significant drop in DB coverage in the workforce. From 1977 to 2011, Registered Pension Plan (RPP) coverage dropped from 52 percent to 37 percent for male workers, mainly due to declining DB coverage, according to Statscan. The trend has been for employers to switch to DC pension plans. 18.6 percent of workers in an RPP were in DC plans in 2013, an increase of 0.6 percent from 2012. In the traditional DB pension plan the employer bears the bulk of the risk, compared to DC pension plans where the risk is shared.

HOOPP (Healthcare of Ontario Pension Plan) is a poster child for the viability of DB pension plans. This multi-employer DB pension proves that DB pension plans are still a viable option when managed prudently. HOOPP once again found itself in surplus position, posting an impressive 122 percent funding position in 2015.

With many employers mulling over the move from DB to DC, let’s look at four advantages DB plans offer over DC plans for both employers and workers.

Advantage #1: DB pension plans are more cost effective

One of the major reasons employers switch from DB to DC is the cost. While DB may be more expensive for the plan sponsor, DB offers a cost advantage for the plan administer. The cost for HOOPP is about 0.3 percent, compared to a 2 percent investment fee for most DC mutual funds. This means more money in the pockets of retirees and less in the way of fees for DB members.

Advantage #2: Financially better-off workforce

Workers in DB pension plans are financially better-off than those in DC plan plans. While many workers in DC pension plans rely on government benefits in their golden years to get by, workers with DB pension plans are less likely to depend on government benefits since their income in retirement is more likely to be sufficient to cover their expenses.

Advantage #3: Portfolio managers handle tough investment decisions

Poor decisions can cause your investments to take a beating. With DC pension plans, investment choices are in the hands of workers. Workers must decide where to sock away their money to maximize their returns. While some are well versed in investing, a lot aren’t. Some risk-adverse investors could park their money in GICs and see paltry returns. With DB pension plans, the investment decisions are handled by professional portfolio managers, leaving workers with one less thing to worry about.

Advantage #4: DB pension plans offer a steady stream of income for life

Think of a DB pension plan like an annuity. Since DB pensions are based on a pension formula, workers are guaranteed a steady stream of income for life. On the other hand, DC workers have the risk of outliving their money in retirement. This could force a worker in a DC pension plan to stay longer in the workforce.

These are just a few of the advantages DB pension plans offer over DC. For a full list, please visit the HOOPP website.

Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians, available now on Amazon and at Chapters, Indigo and major bookstores, and as an Audiobook on Amazon, Audible and iTunes.