What is the difference between a deﬁned beneﬁt and a deﬁned contribution retirement plan?

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A defined benefit plan guarantees a certain amount of retirement income based on a formula that takes into account the employee's salary and years of service. The employer is responsible for funding the plan and assumes the investment risk. In contrast, a defined contribution plan, such as a 401(k), allows employees to contribute a set amount of their salary toward their retirement savings, often with an employer match. The ultimate retirement benefit is dependent on the performance of the investments in the plan and the employee's contributions. Therefore, with a defined contribution plan, the employee assumes the investment risk and has more control over the size of their retirement savings.

What Is the Difference Between a Deﬁned Beneﬁt and a Deﬁned