The Fact
A defined-benefit pension promises a formula-based retirement benefit and generally leaves the employer responsible for funding promised benefits. A defined-contribution plan such as a 401(k) promises no specific retirement benefit; the worker's account depends on contributions, investment gains or losses, and fees. GAO identifies this change as a shift of retirement-income risk and responsibility toward workers.
What This Means
A pension and a 401(k) are not simply two versions of the same deal. With a 401(k), workers carry much more responsibility for saving, investment choices, market performance, and whether the accumulated balance lasts through retirement.
Sources
- U.S. Department of Labor, FAQs about Retirement Plans and ERISA; U.S. Government Accountability Office, retirement-security reports on the shift from defined-benefit to defined-contribution plans.