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Types of Plans

All retirement plans fall into the general category of either a Defined Contribution (DC) plan or a Defined Benefit Pension (DB) Plan.

Defined Contribution (DC) Plans:

Any contribution to a Participant's account in a DC plan is as a percentage, or in compliance with a formula, based upon the Participant's current year Compensation. Eventual benefits are determined by the amount of contributions plus actual gains or losses. Some of the more common DC plans are as follows:

Profit Sharing Plan (PSP):

401K Plan:

Employee Stock Ownership Plan (ESOP):

Money Purchase Pension Plan (MPPP):

Defined Benefit Pension Plans (DBPP):

In contrast to a DC plan, which is defined by the amount of money contributed to the plan each year, DB plans focus on the amount of benefit an Employee will receive upon retirement. The benefit formula is generally stated as a promise to provide a guaranteed monthly benefit to the Participant beginning at a specified date in the future. The amount of the fixed benefit an Employee receives is usually determined by factors such as an Employee's Compensation and/or his number of Years of Service with the Employer.

A type of DBPP which has enjoyed increased popularity in the past few years is the Cash Balance Plan:

What is a Cash Balance Plan

Why a Cash Balance Plan:

Should Your Business Consider A Cash Balance Plan?

  

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