Defined Benefit vs Defined Contribution

Shifting public education employees from a secure defined benefit pension system to a risky defined contribution plan has been contemplated by some in the General Assembly. What are the differences? 

Defined benefit  

  • Defined benefit plans give employees a fixed amount of money at retirement based on their salary and years of service.
  • Defined benefit pension plans guarantee a specified monthly benefit for life based on salary and years of service.
  • Teachers are already paid less than comparable professionals. A secure retirement has been one of the benefits that helped give teachers incentive to stay in the classroom.  

Defined contribution  

  • Using individual savings accounts, employees invest the money on their own. The ultimate retirement benefit depends on the investment earnings of the plan. The benefit ceases once the account is depleted, regardless of the employee’s age or circumstances.
  • Defined contribution plans shift risk from employers to employees. 
  • Defined contribution plans promise no guaranteed retirement benefit. 
  • A defined contribution plan does not provide employees protection from stock market volatility or corporate fraud.