What is the difference between a defined-benefit retirement plan and a defined-contribution retirement plan?
UAW members at the Big Three, Delphi and Visteon have negotiated defined-benefit pension plans. In a defined-benefit plan, the employer guarantees a set payment to retired workers for as long as they live. Funds to pay these benefits are set aside each year by the employer, and managed as a trust on behalf of all beneficiaries. In the case of UAW-negotiated contracts, the defined benefit is based on a formula which takes into account years of service at the company. Defined-contribution plans, by contrast, do not offer retirees any form of guaranteed income. A certain amount is contributed each year for each employee (sometimes by the employee, sometimes by the employer, sometimes by both). These accounts, such as 401(k) accounts and Employee Stock Ownership Plans (ESOPs), are usually managed individually, for the benefit of each individual employee. When the employee retires, he or she receives whatever principal and interest has accumulated in the account. Why does the UAW view defin
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