What is a “hybrid” retirement plan?

A “hybrid” retirement plan uniquely combines elements of both defined benefit and defined contribution plans. This structure allows for a more flexible approach to retirement savings, providing participants with the security of guaranteed benefits typically found in defined benefit plans while also integrating features that allow for individual investment choices and contributions akin to defined contribution plans.

In a defined benefit plan, participants receive a specific benefit amount upon retirement, often based on salary and years of service. In contrast, defined contribution plans, like 401(k)s, depend on the contributions made by both the employer and employee, with retirement benefits varying based on investment performance and the total contributions made over time. By marrying these two models, hybrid plans can offer a stable benefit component alongside a more customizable savings and investment pathway, appealing to a broader range of employees.

This dual approach addresses the needs for predictability and flexibility in retirement savings, making it particularly advantageous for those who may be concerned about market volatility while still wanting the option to grow their retirement assets through contributions and investments.