How does a defined benefit plan work?

A defined benefit plan, commonly known as a pension, is administrated and funded by an employer. Here's how they work: Employers make contributions to the pension plan periodically or annually. The amount uses a retirement income calculation based on an employee's years of service with the company, their age and their salary.

What is a defined contribution plan?

Defined contribution plan s are employer-sponsored retirement plans where money is put in regularly over time, either by you or your employer. Common types of defined contribution plans where employees do most of the contributing include 401 (k)s, 403 (b)s and 457 (b)s. These can be supplemented with employer contributions as well.

What is the difference between defined benefit and defined contribution?

A defined benefit plan is the responsibility of the employer, while the employee takes responsibility for a defined contribution plan. We’ll discuss the differences as well as the pros and cons. A financial advisor can help you get a handle on options for saving for retirement.