Retirement Glossary

D

Defined benefit plans

Although defined benefit plans such as pensions have formed the backbone of the U.S. employer-sponsored retirement plan system for many decades, they have been on the decline in recent years as more and more employers shift to defined contribution plans. Here are some attributes of a defined benefits plan:

  • Historically prevalent, primarily employer-funded
  • Benefit at retirement is guaranteed
  • Employer bears risk
  • Example: Pension plans

The plans discussed here are defined contribution plans, the most common types of plans in the small business market.

There are two main types of defined contribution plans: qualified plans and IRA-based plans.

Defined contribution plans

Although defined benefit plans such as pensions have formed the backbone of the U.S. employer-sponsored retirement plan system for many decades, they have been on the decline in recent years as more and more employers shift to defined contribution plans. With a defined contribution plan, such as a 401(k), there is not typically any guarantee of what participants will have at the time of retirement (i.e., the employee, and not the employer, bears the investment risk). Here are some other attributes of a defined contribution plan:

  • Often funded by both employer and employees
  • Benefit at retirement is not guaranteed
  • Employee bears investment risk

There are two main types of defined contribution plans:

Browse Glossary

D (2)