Common Misconceptions About Pensions
September 15, 20202020 Legislative Update #10
October 1, 2020The National Institute on Retirement Security (NIRS) released a new report evaluating the challenges public and private sector employees face when it comes to retirement. Along with rising healthcare costs, employees with 401(k)s experience the additional stress of market volatility once they are preparing to retire. The retirement benefit from a 401(k) style plan or a defined contribution (DC) plan is not a guaranteed amount. Benefits are based on how much money the employee and employer contributed to the retirement account plus any gains and losses from the investments. Employees with pensions or defined benefit (DB) plan, on the other hand, receive a guaranteed amount based on a formula using their years of service and final average compensation and a benefit factor (a percentage used to calculate retirement benefit).