Q: What are the most noticeable differences between a defined benefit retirement plan and a defined contribution retirement plan?
Doug Battista: The two most common types of employer-sponsored retirement plans are Defined Contribution and Defined Benefit. A “Defined Contribution” is one in which the employer contributes an amount on a regular basis to the employee, typically as a percentage match. The most common approach in a defined contribution plan is for an employer to sponsor a 401K or 403B plan in which the employee must contribute a percentage of his/her earnings. The employer will then provide a match on the employee’s contribution.
Q: What investment options are included in a defined contribution plan?
Doug Battista: In the defined contribution approach, the employee is provided with a number of investment options, typically mutual funds, that can be used for retirement savings. In essence, the employee is then responsible for his/her retirement savings, not the employer.