Defined-Benefit/Defined-Contribution Hybrid Pension Plans: Helping Retirees Succeed in Their Retirement Goals
People have two main goals when saving for retirement: first, an annual fixed income to maintain a desirable lifestyle during retirement; and second, some wealth left over at death to bequeath to family, friends, and charities. Most people presumably have both goals. However, when choosing an investment strategy while working (the accumulation phase) and a distribution strategy during retirement (the decumulation phase), there is usually a trade-off, such as the need to use less income during life in order to leave a larger bequest.
Although there are many financial products and methods for accumulating wealth, this article focuses on those employees who participate in a retirement plan sponsored by their employers. Employers can promise and deliver retirement benefits through either a defined-benefit (DB) plan or a defined-contribution (DC) plan. Some employers offer hybrid retirement programs that are designed to combine the advantages of each type of plan, such as the floor-off-set plan.