Jane is offered a pension plan through her employer. The plan agrees that if she will deposit 6% of her salary to a retirement account, the employer will deposit a matching amount. When Jane retires, whatever money is in the account will belong to her. What is the proper name for this type of pension plan?

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Quizplus · Accepted Answer

The proper name for this type of pension plan is a defined contribution plan. In this type of plan, the amount of money that goes into the retirement account is defined or fixed, and the retirement benefits depend on the performance of the investments in the account. Jane's employer offers to match her 6% contribution, making it a defined contribution plan. A vested pension plan refers to the employee's right to receive the employer's contributions after a certain period of service. A defined benefit plan, on the other hand, promises a fixed amount of retirement benefit, regardless of the contributions made. A tax-deferred savings plan is a type of defined contribution plan, like a 401(k), where contributions are tax-free, but taxes are paid upon withdrawal.

Jane Is Offered a Pension Plan Through Her Employer