Retirement Roulette

Don't Gamble With My Pension

Pension 101: Glossary of Terms

Defined Benefit Plan is a secure retirement plan with fixed retirement benefits calculated on a formula based on salary and years of service. You can plan your retirement knowing exactly how much you will receive. Funds are pooled and invested by expert money managers. DB plans usually provide disability, death and survivor benefits as well.

Defined Contribution Plan is an individual 401k style plan in which you or your broker invest your money in the stock market or in bonds. During good times, your account goes up. When times are bad, your account dwindles. When you retire, whatever amount is in the fund represents your retirement account.

Cash Balance Plan is a hybrid plan that has an account like that of a defined contribution plan. Annual investment credits are added to the account, however the employer guarantees that employee account balances will earn interest at a specified rate. Retirement benefits are not calculated on a formula, but like a defined contribution account, whatever amount is in the fund represents your retirement account.

Cost of Living Adjustment (COLA) provides a way to raise retirees' benefits and thereby help them offset increases in the cost of living caused by inflation.

Death Benefits are paid to the survivor of a plan participant who dies while still on the job.

Disability Protections are often built into DB plans as part of the risk pool and cover participants as long as they are disabled, without respect to age. Under a DC plan, a participant who becomes disabled will have access only to what money has accrued in his/her account

Plan Participant is a member of a retirement plan and can be an active member (working), an inactive member (terminated, but not yet eligible for a retirement benefit), or a retired member.

Portability is the right of an individual to move funds from one pension plan to another. Under most governmental defined benefit plans, state law allows employees to recover service credit for earlier years of work for which they will not earn such credit. These laws allow them to "purchase prior service credit," sometimes known as "buying back prior service."

Survivor is the individual designated by a plan participant to receive death or survivor benefits. The survivor is sometimes called the beneficiary.

Survivor Benefits are paid to the survivor of a plan participant who dies after he or she has retired.

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