A defined-benefit plan promises a specific retirement benefit, while a defined-contribution plan does not guarantee a specific benefit and places the investment risk on the employee.
A defined-benefit plan guarantees a specific retirement benefit, typically based on salary and years of service, offering a predictable income stream post-retirement. On the other hand, a defined-contribution plan does not guarantee a specific benefit; instead, the retirement benefit is based on the contributions made and the investment performance over time.
In a defined-benefit plan, the employer bears the investment risk and is responsible for funding the promised benefits, while in a defined-contribution plan, the employee bears the investment risk, as the retirement benefit is dependent on the individual's contributions and investment choices.
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