What is the difference between a defined benefit pension plan and a defined contribution pension plan?
Plan Features
Type of Plan
Forfeitures of unvested amounts eg due to employee resignations must be used
to reduce the employer contributions that would otherwise be made under the plan.
A separate account is established for each participant and certain amounts are
contributed based on a specific formula eg a specified percentage of
compensation
Forfeitures related to unvested amounts may either be reallocated to the other
participants in a nondiscriminatory manner or used to reduce future employer
contributions.
This plan establishes a contribution formula based on actuarial techniques that are
Defined benefit pension plan
sufficient to fund a fixed benefit amount to be paid upon retirement.
Defined contribution pension plan
This plan is usually less costly and the employer liability is fixed at the date of
contribution rather than at some future date.
