Retirement Plans Defined benefit plan is a qualified retirement plan which defines the amount of going to employees in terms of the benefit they will receive when they retire. This type of plan requires an actuary to determine the employer's contribution each year. Defined Contribution Plan is a qualified retirement plan which defines the amount going to employees in term of how much an employer contributes to the plan each year. This type of plan maintains account balances for all participants. This enables employees to elect to reduce their pay in order to put more money towards their retirement plan.
Some employers match the amount that an employee puts in the plan.
Highly paid employees are limited in the percentage salary reductions to the amount which generally exceeds the average percentage salary reductions of lower paid employees by two percent. A profit sharing plan may provide for benefit payments prior to retirement. This is a built in agreement so that employees can get money for such things as school and paying off expenses. This extra income however is taxable by the government. These plans may not provide for benefit payments prior to retirement or normal retirement age.