Retirement plans may be categorized as either defined benefit plans or defined contribution plans.
About Defined Benefit Plans
A defined benefit plan identifies the specific benefit that will be payable to you at retirement. Your basic retirement benefit is usually based on a formula that takes into account factors like the number of years a participant works for the employer (years of service) and the participant's salary. Your retirement benefit is generally provided in the form of regular payments over your lifetime beginning at what the plan calls "normal retirement age," which is typically age 65. This stream of periodic payments is generally known as a pension or sometimes called an annuity.
About Defined Contribution Plans
More and more employers are replacing defined benefit plans with defined contribution plans, primarily due to the expense and long-term obligations associated with running a defined benefit plan. If you have a defined benefit plan through your employer, be sure to regularly let your employer know that you really appreciate your retirement plan; it’s a benefit well worth keeping these days!