Trends in Retirement Plans

QUALIFIED PLANS

Let's look at the 2 basic types of qualified retirement plans:

• defined contribution plan
• defined benefit plan

Defined Contribution Plan

A defined contribution plan is an individual retirement account that lets employees contribute some of their compensation (not exceeding a certain amount) on a tax-deferred basis.

Employers sometimes offer to match a percentage of the employee's contribution (up to a maximum amount). Percentage amounts are usually based on eligibility requirements (for example, vesting).

Employee benefits from the plan also depend on:

• income
• expenses
• gains
• losses

Defined contribution plans track participants' account balances.

Possible problems include:

• Employers are no longer responsible for the risks associated with saving for their employees' retirement. Rather, employees are expected to bear what may be for some an unmanageable load.
• Employees may not be financially prepared to handle the responsibility of a defined contribution plan.
• Employers that offer defined contribution plans to their employees must be willing to educate employees thoroughly.