What is Defined Benefit Plan?

Whether you're a beginner or an expert, you will find this Glossary useful.

Defined benefit plan, also referred to as pension plan, is a retirement plan that pays participants benefits that have been calculated using formulas which include factors age, earnings and length of employment.

what-is-defined-benefit-plan

Defined benefit plan definition

Defined benefit plan, also referred to as pension plan, is a retirement plan that pays participants benefits that have been calculated using formulas which include factors age, earnings and length of employment.

For instance: working an additional year increases the employee's benefits, as it increases the years of service used in the benefit formula.

In defined benefit plan the employer is responsible for making investment decisions and managing the plan's investments, therefore the employer presumes all the investment risk.

Defined benefit plan payment options

- Single-life annuity: provides a fixed monthly benefit until death

- Qualified joint and survivor annuity: offers a fixed monthly benefit until death and allows the surviving spouse to continue receiving benefits until death

- Lump-sum payment: pays the entire value of the plan in a single payment


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