In an attempt to attract and retain good employees, companies may offer the benefit of retirement savings options. Employers have the option of sponsoring defined benefit plans and defined contribution plans or both to eligible employees. The intent of the plans are to provide long term investment options to be used as retirement income. Each investment option has its own pro's and con's to both the employer and employee. The following information provided will compare and contrast defined benefit plans and defined contribution plans. It will also discuss how beneficial the plans may be for participants. Defined Benefits and Defined Contribution Retirement Plans Compared Defined benefit and defined contribution are two types of retirement plans that companies offer their employees. The two benefits are different based on how employees are able to participate, but both plans serve the same purpose. Defined benefit plans is a fixed amount set up for eligible employees for retirement. This plan consists of employer contributions either quarterly or annually. It is an actual determination of what the employee retirement benefits should be and not based on profits. A dollars time’s service calculation is usually used in large organization. The defined benefit contribution plan is based on employee contributions and employer contributions. With these plans the employer agrees to contribute a fixed amount to the employee's pension fund each year. The income that the employee receives during retirement depends upon how much money the plan accumulated and how much income that amount can generate. The 401k and stock plans are offered by many employers. “When the markets rise, the employer will reap the benefit of the rising values, and can reduce its pension contributions and increase its profits while the retiree continues to receive the same promised income” (401kpsp.com, 2011). Defined Benefits...
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