What Type of Retirement Plans Should Employers Consider?

An Employee Benefits FAQ with Joshua A. Diveley.

With respect to qualified retirement plans, there are generally two types of plans to consider, one being the defined benefit plan and the other being a defined contribution plan.

A defined contribution plan is just that, it defines what the employer and you as the employee are going to contribute to the plan. What you end up getting at retirement is going to depend on what your contributions are and what those market returns are. If it does well, you have more. If it does not-so-well, you have less.

A defined benefit plan is going to be one in which the amount contributed each year is going to vary based on what the end benefit is going to be, so, regardless of what the market returns are, you are still going to know as an employee what your benefit is going to be when you retire. For example, you plan may say that at retirement if you have worked there for 20 years you will receive a 50% compensation benefit based on the average compensation over the last 3 years. So that would be an example of a defined benefit.

Based on those 2 types of main plans there are a lot of variations within each type.

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