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

 

Think of a defined benefit plan as an annuity. Under this type of annuity there are payments that usually start at age 65 and are paid for the lifetime of the pension-holding spouse.

 

The other type of plan is a defined contribution plan. Think of this type of plan as a “what you see is what you get” type plan and the pension holding spouse will receive a plan statement from the employer which will show an account balance.

 

And complicated matters further, hybrid plans that can have aspects of both.  Further, there are plans provided by the State or Federal Government with unique features.

Brooke Swier Schloss
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Estate Planning & Family Law Attorney