There are really two main types of retirement plans: the defined benefit plan and the defined contribution plan. When most people think of retirement plans, they’re usually thinking of a defined contribution plan. This type of plan is an employee sponsored plan with an individual account for each participant. The benefit is fully based on the contributions made by either or both the employee and the employer. These accounts are IRAs, 401(k)s, 403(b) accounts, and sometimes profit sharing.
The defined benefit plan often is referred to as a pension plan. These types of plans calculate benefits using a fixed formula to calculate a monthly lifetime payment that typically factors in final pay and the number of years of service with the employer.