What are private pension plans? Briefly explain the two types of private pension plans.

defined benefits plans and defined contribution plans. Under defined benefits plans, the size of the benefit is precisely known and is usually based on a simple formula using input such as years of service and salary. This type of plan is often favored by unions and is closely monitored under the Employee Retirement Income Security Act of 1974. Under defined contribution plans, the size of the benefit depends on how much money is contributed to the plan. This money can be contributed by either the employer alone (noncontributory plans) or the employer and the employee (contributory plans).