Let’s demystify the jargon and break down the difference between a Defined Benefit Plan (DB or pension) and a Defined Contribution Plan (DC) in the simplest way.

Dear New to OCERS:

First of all, welcome to the world of public service in Orange County! It’s fantastic that you’re taking an interest in your retirement plans. Let’s demystify the jargon and break down the difference between a Defined Benefit Plan (DB or pension) and a Defined Contribution Plan (DC) in the simplest way.

Defined Benefit Plan (DB or pension):
A defined benefit plan through OCERS, like most public sector plans, is based on a set of factors: benefit formula, age, final average salary and years of service. This means that when you retire, you will receive a lifetime fixed monthly payment. 

Defined Contribution Plan (DC):
A defined contribution plan like a 401(k), on the other hand, does not promise a specific amount of benefits at retirement. In these plans, the employee (and/or with the employer) contribute to the employee’s plan. The final retirement payout depends on your contributions and your investments returns (gains or losses). 

In short, a Defined Benefit Plan (DB) guarantees a specified monthly amount upon retirement, while a Defined Contribution Plan (DC) is like putting your money into your own savings to withdraw later, with some investment risks.

Congratulations on your new role, and here’s to a secure financial future!

Sincerely,
Benny