Defined Benefit vs. Defined Contribution

Knowing the facts about Defined Benefit Plans vs. Defined Contribution Plans can help you choose the right retirement option for your employees, while accomplishing your business objectives more cost effectively.

Defined Contribution Plans. These plans include mostly 401(k) and profit sharing plans, but also stock bonus plans and other hybrids. Defined contribution plans are the most common types of retirement savings plans and a vast majority of workers have come to rely on them for their retirement income. One of the major differences between Defined Benefit vs. Defined Contribution plans is that with Defined Contribution Plans, an individual account must be set up for each participant — even if you're the only participant — and you only contribute a fixed, maximum amount each year. The contributions are based on a percentage specified in the plan. A combination of good plan design, administration and communication is the key to making this plan a success. Regardless of the size of your business or the complexity of your retirement plans, Bank of America Merrill Lynch can help you develop the investment mix that's appropriate for your plan.¹

Defined Benefit Plans. With these plans, retired employees receive a fixed annual payout throughout their retirement years. The employers' quarterly or annual contribution is based on a formula which determines how much money must be contributed right now for there to be enough money to pay the employee their fixed benefit amount during retirement. These plans continue to represent a viable and important retirement plan design for plan sponsors and their participants in many industry and business sectors today. With the flexibility of both traditional and hybrid plan designs, sponsors can even more effectively meet the objectives of attracting and retaining employees while at the same time effectively preparing their employees for retirement.

Bank of America Merrill Lynch can help you better navigate the nuances of each plan and help you decide the Defined Benefit vs. Defined Contribution question.

¹Bank of America Merrill Lynch and its representatives provide only general information and/or materials regarding qualified retirement plans and do not provide investment advice or recommendations. All qualified retirement plan investment decisions are to be made by the Plan Sponsor.