Summary: Defined-Benefit Retirement Plans

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Defined-benefit retirement plans are “a traditional pension plan in which you receive a promised or “defined” pension payout at retirement. The pay out is based on a formula that takes into account your age at retirement, salary level, and years of service” (Keown, 2013). Defined-contribution retirement plans are “a pension in which you and your employer or your employer alone contributes directly to a retirement account set aside specifically for you. In effect, a defined-contribution plan can be thought of as a savings account for retirement” (Keown, 2013). Each of these plans has their own characteristics. The plan that is riskier for an employer is the defined-benefit retirement plans. No matter what investments are made when it is time to retire the employer must give the promised amount even if they lost it all in the stock or bond market. Also, it has to be extended to a spouse. If the employee dies the spouse will keep getting it. The plan that is riskier for an individual employee would be the defined-contribution retirement plans. This is because your retirement payments are not guaranteed. The employee can decide how to invest, but if the returns are not good the employee can lose some or all of their money. Unfortunately, the employers do not care. …show more content…
This plan benefits the employee at the end of his or her retirement because it is tax deferred and the earnings on those contributions are tax deductible. For instance, McDonald’s gives three dollars for every dollar an employee saves. The employee decides whether to invest their stocks in conservative or aggressive funds. There is a 16,500 maximum amount of money that companies will match and will incorporate the rise in inflation (Keown, 2013). This plan gives an employee more resources when they have finished

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