Defined Benefit vs. Defined Contribution Pension Plan
The most simple explanation I can ever give
I will break each option down further in a different post, but the first thing is to understand the difference between the two. It’s right in the name if there’s ever any confusion.
Defined Benefit Pension Plan
You and your employer pay into a pension plan and this will eventually lead to a pension that will pay you a set amount for life. It will pay you a “Defined Benefit,” for life.
Defined Contribution Pension Plan
You and your employer will contribute a set amount of money into an investment account. This “Contribution is Defined,” but does not guarantee a pension for life, it just guarantees how much of your money and your employer’s money will go into the pension plan.
Each plan has different pros and cons and you should consider yourself lucky if you work for an employer who offers a DBPP or a DCPP, but that doesn’t mean your retirement plan is set. This usually just plays a huge role in helping people achieve their long-term goals, but there can be a lot of factors and some huge risks to potentially consider.
When I have a little more time, I will break down the plans in more detail.
Always feel free to email me at firstname.lastname@example.org if you have any specific questions about your own pension or retirement plan.