A defined benefit plan is a qualified retirement plan which defines the amount that is flowing to employees in the terms of the benefits that they will receive when they retire. Another similar plan to this is the defined contribution plan. This is also a qualified retirement plan which defines the amount flowing to employees in terms of how much an employer contributes to the plan each year. This could be 20 percent of the employee compensation. This type of plan maintains account balances for all participants.
Companies also have what is called profit sharing plans.
These are defined contributions under which contributions may vary from year to year. Contributions that are under 15 percent of the total payroll is tax deductible, while anything over 15 percent is not tax deductible. This profit sharing plan may provide for benefit payments prior to retirement. This plan is actually another type of profit sharing plan. This plan enables employees to elect to reduce their compensation in order to contribute to the plan.