Your Pension Facts

DC vs DB: The difference between a defined contribution (DC) and a defined benefit (DB) plan

Two questions commonly asked by our members, and the answers lead to a brief explanation of how the St. Paul Teachers’ Retirement Fund Association works for you. “Can I contribute more money,” and “what is my running contribution total?” All retirement plans have one common purpose, to help you save money. However, although they have the same purpose, they all have unique characteristics and different ways for you to save for retirement. The two main types of plans are defined benefit and defined contribution. We will start with defined benefit, which is what the SPTRFA retirement plan is.

A defined benefit plan means your benefit is determined by a preset formula at the time of retirement. Factors such as final average salary and years of service are used in the formula along with preset multipliers. Defined benefit plans are a relatively inexpensive and easy way for people to save money for retirement. In this plan, both you and the district contribute money which is invested and managed by the fund. Once you are a vested member*, you are guaranteed a lifetime monthly benefit at retirement.*

The other plan type is a defined contribution plan. In a defined contribution plan your benefit is determined by your contribution amounts and how well your investments have done. When you contribute to this type of plan you decide how and where your money is invested. It is your responsibility to make any changes to how this is managed. A 401(k), 403(b) or 457 plans are all examples of defined contribution plans. In a defined contribution plan, once you retire and your benefit has been calculated you can decide how you want that distributed to you over your retirement. This gives members a variety of ways to receive their benefit.

The SPTRFA defined benefit plan is the foundation for your retirement, unlike a defined contribution plan, a defined benefit plan guarantees a lifetime benefit.  In addition to your SPTRFA benefit; social security, your own personal savings, and contributing to a defined contribution plan can maximize your security and enjoyment in retirement.