Why a Defined Benefit Plan for CSI Schools

During the webcast in March 2004, we commented on defined benefit plans and how they differ from defined contribution plans (e.g., 401(k) plans). Philosophically, defined benefit and defined contribution plans are quite different. A defined contribution plan is typically viewed as a savings vehicle that is focused on individual choice. The participant saves what he or she chooses and assumes the investment risk. Most defined contribution plans provide a lump-sum benefit for the participant at retirement or when the person leaves the plan.
On the other hand, a defined benefit plan is based on the concept of community. The purpose is to provide a retirement benefit that lasts a lifetime. Benefits provided through a defined benefit plan are predictable, making them extremely useful for retirement planning. Both school boards and employees often find this predictability very helpful. Alternatively, the final account balances in a defined contribution plan depend on the amount the person saves and the market return experienced over that person’s working lifetime. The chart below highlights key differences.


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Full Issue: No. 166 - September 22, 2004

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