Benefit vs Contribution

• With a defined benefit plan, you know exactly what to expect when you retire. The amount of money that you will receive is clearly defined in the rules of the retirement plan. You get a specific amount of money if you work a certain number of years. By comparison, the defined contribution plan involves setting aside a certain amount of money for your retirement. With this type of plan, there are no certainties as to how much money you will have when you retire.
  
  

Contributions

• One of the main differences between these kinds of plans is who contributes to them. With a defined benefit plan, the employer makes all of the contributions on your behalf. This money is not taken out of your paycheck. With a defined contribution plan, you are in charge of contributing your own money. You must select a certain percentage of your paycheck to contribute to the plan. Your employer may also have the opportunity to match your contributions to a defined contribution plan.
  
  

Investment Control

• The amount of investment control also varies depending on which type of retirement account you have. With a defined benefit plan, the choice of investments is left up to the manager of the plan. As an employee, you have no say over what your retirement money is invested in. When you have a defined contribution plan, you can choose the individual investments for your portfolio. This gives you more control over what happens to your money.
  
  

Risk

• When it comes to ensuring that you have enough money for retirement, the defined contribution plan is riskier than a defined benefit plan. With a defined benefit plan, the company takes all of the risk and guarantees that you will have a certain amount of money for retirement. When you use a defined contribution plan, your retirement security is up to you. You must choose the right investments and their performance determines how much money you have when you retire.