Defined Contribution vs. Defined Benefit
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SOC Final Exam
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9 Terms
What is a defined contribution plan?
A retirement plan where the employee determines how much to contribute and how to invest the money; the benefit amount at retirement depends on investment performance
Who bears the financial risk in a defined contribution plan?
The employee
What role can the employer play in a defined contribution plan?
The employer may choose to match employee contributions up to a certain percentage, but it is not required
What is a common example of a defined contribution plan?
A 401(k) plan
What is a defined benefit plan?
A retirement plan that guarantees a specific monthly benefit to retirees, typically based on salary and years of service
Who bears the financial risk in a defined benefit plan?
The employer
How is the benefit amount in a defined benefit plan determined?
through a formula based on years of employment and average income level
What is a common example of a defined benefit plan?
Social Security or a traditional pension
Which plan offers greater financial security in retirement (if funded properly)
A defined benefit