There has been a dramatic shift in the way most companies are now structuring retirement plans. Previously, under a
defined benefit plan (e.g., a typical "pension" plan), the employer generally funded the plan, and the employee received a retirement benefit based on a formula that factored highest salary attained and years of service. In this type of plan, a benefit is guaranteed, and the employer assumes the risk of ensuring that plan assets will be sufficiently available when employees start drawing their pensions.
Because defined benefit pensions represent large future liabilities, many companies have sought ways to restructure their retirement plans. In contrast to a defined benefit plan, a defined contribution plan (e.g., 401(k) plan) is typically funded through employee pre-tax salary deferrals and, sometimes, employer matching contributions. In such a plan, the retirement "benefit" will be a function of total contributions made on behalf of an employee during his or her working years and the results of the funding options chosen by the employee. Although the employer may decide to match employee contributions, there is no obligation to do so.
CRN200802-2013737
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