Employer retirement plans fall into two categories: Defined Benefit and Defined Contribution. Both are saving plans maintained by an employer as a benefit for its employees. Examples of defined benefit plans include: pension plans and cash balance plans. Examples of defined contribution plans include: 401(k), 403(b), SEP IRA, SIMPLE IRA.
Defined Benefit vs. Defined Contribution
How Employer Retirement Plans Work:
A defined benefit plan is usually seen in pension plans where the retirement benefits are calculated by a fixed formula that factors in years worked and salary history. The employer, hires investment advisors to help manage the pension plan and its assets. The plan specifies that the employee will receive a certain amount of retirement compensation. In essence, the employer assumes the risk.
A defined contribution plan is a retirement plan where the employee controls the amount contributed to the plan as well as how the funds are invested. The employee’s retirement benefits depends on how the fund assets perform and grow. In essence, the employee assumes the risk.
To see how a defined benefit plan and defined contribution plan compare with each other and how to determine which might options my best meet your goals, contact us “here.”
Why Is Socially Responsible Investing Important with Employer Retirement Plans?
A recent study reports that SRI retirement options make employees, particularly millennials, happier. It is important for companies with pension and retirement plan funds to engage in a socially responsible manner with the companies whose stocks they own. Part of the process is altruistic; however, at Three Corners Capital we believe there is an economic case to be made when evaluating the research of companies that have strong corporate responsibility programs and growing importance of sustainable business practices and managing natural resources more efficiently. Furthermore, when considering long term risks associated to small probability high impact events and the impact of regulations, we believe reducing exposure to these outcomes adds value to investors.
To learn more about sustainable and socially responsible topics “contact us” or check out our people, planet, and profit pages.