Defined Benefit vs Defined Contribution: Which Type Is Your Plan?
DB plans promise a benefit; DC plans accumulate an account. Different mechanics, different risks, different ability to host 401(h).
Key takeaways
- DB promises a benefit by formula; DC accumulates an account by contributions.
- Investment risk sits with the employer (DB) or the participant (DC).
- 401(h) requires a qualified pension or annuity plan — typically a DB.
- Many sponsors run both families together.
The core difference
DB plans define the benefit; DC plans define the contribution. That single distinction drives funding, risk, communication, and which Code sections apply.
Funding and risk
DB sponsors fund actuarially and bear investment-return risk; DC participants direct their own accounts and bear the market outcome.
Where 401(h) lives
401(h) attaches to qualified pension or annuity plans — almost always a DB or cash balance plan in practice. DC-only sponsors don't have a 401(h) host.
Frequently asked questions
Availability, tax treatment, and plan design depend on the facts and circumstances of the employer, plan document, participant group, and applicable law. 401h.com provides general educational information only — not tax, legal, actuarial, investment, or ERISA advice. Consult qualified tax, legal, actuarial, and plan professionals.
401h.com Editorial
401h.com
The 401h.com editorial team publishes plain-English explainers on 401(h) retiree medical benefit plans. Educational only — not tax, legal, actuarial, investment, or ERISA advice.
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