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

Last updated October 2, 2026

A defined contribution plan (like a 401(k)) provides individual accounts whose value depends on contributions and investment returns — participants bear investment risk. A defined benefit plan promises a formula-based benefit at retirement — the employer bears the risk and funds it accordingly.

The two families of qualified plans divide on who bears the risk:

  • Defined contribution (DC): each participant has an account funded by employee deferrals and employer contributions; the retirement benefit is whatever the account grows to. 401(k), 403(b), profit-sharing, and money purchase plans live here.
  • Defined benefit (DB): the plan promises a benefit — say, a percentage of final pay per year of service. The employer must fund that promise, with actuarial valuations, minimum funding rules, and generally PBGC insurance.

Fiduciary work differs accordingly: DC oversight centers on the investment menu, fees, and participant experience; DB oversight centers on funding, the investment of a single trust portfolio, and actuarial assumptions. Cash balance plans blend the presentation (account-style) with DB mechanics underneath.

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