Under “defined benefit plans,” the employer pays the retired employee a fixed amount for a given period. The amount varies, depending on the employee’s length of service, income earned, and age. Because employers fund these plans by contributing to investment funds controlled by money managers, it’s essential to choose highly qualified and reputable fund managers.
Under the increasingly common “defined-contribution plans,” employees contribute to their own retirement accounts, assuming part of the investment risk. In some cases — ideal for employees — employers also contribute to the plan by matching the employee’s contribution up to a certain percentage. The most common type of defined-contribution plan is a 401(k). Even though employees take an active investment role in defined-contribution plans, your company’s advisors and the money managers you use are still fiduciaries with significant liability risk.
Both types of plan are “qualified” pension plans backed by the federal Pension Benefit Guaranty Corporation (PBGC).
For more information about qualified pension plans and how to insure them and their fiduciaries, call our service team today.