Question

If you, as an employee, had the choice between a defined benefit plan or a defined contribution plan, which would you choose and why? Assume that the net benefit is the same - in other words, that the amount the company would pay you for retirement would be the same, the different is purely whether it is under a defined benefit or defined contribution plan.

Answer 1

A defined benefit plan, most often known as a pension, is a retirement account for which your employer ponies up all the money and promises you a set payout when you retire. A defined contribution plan, like a 401(k) or 403(b), requires you to put in your own money.

A defined benefit plan is likely to be more favored by employees because employers typically fund this type of retirement account.

What is the difference between defined benefit plans and defined contribution plans? Defined benefit plans guarantee payments to retirees while defined contribution plans make contributions to retiree account without making guarantees.