The Ultimate Guide to Retirement Plans – Defined Contribution and Defined Benefits

Defined contribution health plan and defined benefit plans are different categories of pension plans, in a nutshell a retirement savings but the core difference between the two plans is which party suffers the investment risks? Retirement is part of a life cycle so it is imperative for every individual to under the concepts of defined contribution vs defined benefit small business and their differences.

What is defined Benefit Plan

Defined benefit plans also referred as pension in which the employees guarantees a specific retirement benefit amount that is basically dependent on the individual salary, the number of years he was been with the company and many other factors. The employer ponies all the money to the employee upon retirement at the discretion of the employee. However defined benefits are more costly to the employers moreover the employee is also uncertain about his investment and the money he is going to accrue after retirement, whether it would be enough to live comfortably. So people have scaled back from defined benefit and started drifting towards defined contribution.

Defined Contribution Pension Plan

These are pension plans where the contributions are specified. They are occupational schemes in which both the employee and the employer both make the contribution on regular basis and proceed to buy a pension. Market study shows participators in defined contribution plans has increased by 281% because of the enormous benefits when compared to defined benefit plan. With this contribution plan employee can have the option of deciding how the contributions are invested and they can be easily changed every financial year as well.

Summing it up

Many companies are eliminating the option of defined benefit when comes to defined contribution vs defined benefit and no more offering to the employees. This makes the life lot more easier for small businesses.