What are the two main types of pension plans?

The two main types of pension plans are indeed defined contribution and defined benefit plans.

Defined contribution plans, such as 401(k) plans, allow employees and employers to contribute a specified amount of money into individual accounts for each employee. The retirement benefits are based on the contributions made and the investment performance of those contributions. This type of plan shifts the investment risk to the employee, as the final retirement benefit can vary greatly depending on market conditions and the individual's investment choices.

Defined benefit plans, on the other hand, provide a predetermined payout at retirement, which is usually based on a combination of salary history and years of service. The employer is responsible for managing the plan and investing the funds, thereby bearing the investment risk. This type of plan provides more security to employees regarding their retirement income but can be more complex and costly for employers to manage.

The other options, while relevant in different contexts, do not represent the primary classifications of pension plans. Equity compensation, for example, pertains to compensation structures involving stock options or equity shares, and is not a type of pension plan. Deferred payment and guaranteed income refer to financial products but do not classify pension plans. Lastly, public sector and private sector represent categories based on the employer type rather than the structure of