What is the difference between a defined benefit pension plan and a defined contribution pension plan?

Plan Features

Type of Plan

Forfeitures of unvested amounts $($e$.$g$.,$ due to employee resignations$)$ must be used

to reduce the employer contributions that would otherwise be made under the plan.

A separate account is established for each participant and certain amounts are

contributed based on a specific formula $($e$.$g$.,$ a specified percentage of

compensation$).$

Forfeitures related to unvested amounts may either be reallocated to the other

participants in a nondiscriminatory manner or used to reduce future employer

contributions.

This plan establishes a contribution formula based on actuarial techniques that are

Defined benefit pension plan

sufficient to fund a fixed benefit amount to be paid upon retirement.

Defined contribution pension plan

This plan is usually less costly and the employer liability is fixed at the date of

contribution rather than at some future date.