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Major Types of Employer Retirement Plans

The first step to understanding your retirement benefits is to understand your employer’s plan. There are two major types: defined benefit and defined contribution.

A defined benefit plan promises a specified payment amount at retirement. This may be stated as an exact dollar amount or may be calculated through a formula that includes factors such as your salary, age and time with the company.

In a defined contribution plan, you and/or your employer contribute to an account. Your contributions are invested and the value of your account upon retirement depends on the amount contributed and how your investments perform.




Contributions and/or Matching Contributions


funded. Federal rules set amounts that employers must contribute to plans.
There are penalties for failing to meet these requirements. 

most plans, there is no requirement that the employer contribute. The
employer may match a portion of the employee’s contributions or contribute
without employee contributions.


employees do not contribute to these plans.

plans require the employee to contribute.

the Investment


sponsor manages the investment and is responsible for ensuring contributions
plus investment earnings will equal the promised benefit.

employee often is responsible for managing the investment of his or her
account, choosing from investment options offered by the plan.

of Benefits Paid Upon Retirement


promised benefit is based on a formula in the plan, often using the
employee’s age, years worked for the employer and/or salary.

benefit depends on contributions made by the employee and the employer,
performance of the account’s investments and fees charged to the account.

of Retirement Benefit Payments


these plans pay monthly annuity payments that continue for life. Plans may
offer other payment options. 

retiree may transfer the balance into an individual retirement account (IRA)
or may receive it as a lump sum. Some plans offer payments through an

of Benefits

Federal government guarantees some amount of benefits.

Federal guarantee of benefits.

the Company Before Retirement Age


an employee leaves after vesting in a benefit but before the plan’s
retirement age, the benefit generally stays with the plan until the employee

employee may transfer the account balance to an IRA or, in some cases,
another employer plan. The employee also may take the balance out of the
plan, but will owe taxes and possibly penalties.

If you have any questions about retirement plan services, or would like to begin talking to a retirement plan advisor, please get in touch by email or by calling (800) 388-1963.

Article adapted from the Department of Labor’s publication “What You Should Know About Your Retirement Plan.” 

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