Defined-benefit retirement plans are quickly becoming a thing of the bygone era

Introduction to Defined-benefit Retirement Plans


These plans are no longer common. In fact, they're disappearing. Most young workers can't expect to get a defined-benefit plan.

Defined-benefit plan is based on employee’s years of service and historical salary. In addition to employer, employees can make contributions as well. Under this plan, an employee receives a specific pension upon retirement.

These plans are much less common nowadays as few companies are willing to accept liabilities that come under pension plans.

Speaking of guarantees, Pension Benefit Guarantee Corp. is a federal agency that insures these pension plans.

Some employers also offer annuities. Annuities can pay for a certain period of time, or for life. Also, depending on the kind of an annuity plan, a spouse can receive payments after death of a married annuity holder. Payouts can be a set percent (i.e., 50%, 100%), and can be for life, or a certain number of years (depending on a specific policy).

 

​What is the difference between defined-benefit plan and defined-contribution plan?


A major difference between these two plans is that the former is a responsibility of an employer. For the latter, the employee is responsible by making contributions and selecting investments. Nowadays, defined-contribution plans are much more common. And even these plans are not offered by every employer.



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