Retirement plans fall into two basic categories: Defined Benefit Plan (DB) or Defined Contribution Plan (DC).

Also known as a traditional pension, it pays a retiree a specific benefit based on years of service and salary level until they die. In some cases, the payout will continue for a spouse or a beneficiary.

Put simply, they’re called Defined Benefit because you know what you’re going to get when you retire.

Defined Contribution (DC) plans are normally known by their IRS Tax Code, like 401k, 403(b), etc. DC plans allow the employee to make pre-tax contributions to their own retirement account. Employers may make matching contributions up to a certain amount.

Your employer serves as a “plan sponsor” and has another company administer the plan and its investment. This plan administrator is typically a mutual fund company, a brokerage firm, or an insurance company.

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