Defined Benefit Plan

Defined benefit plan

A pension plan obliging the sponsor to make specified dollar payments to qualifying employees at retirement. The pension obligations are effectively the debt obligation of the plan sponsor. Related: Defined contribution plan

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Defined-Benefit Plan

A retirement plan in which the retiree receives a set amount in benefits each month once he/she begins receiving benefits. That is, the benefits the retiree receives are not dependent on the performance of the portfolio in which the contributions are invested; the company sponsoring the plan assumes the entire liability. The amount of the benefit is determined according to some formula that usually accounts for the amount of contributions and the length of time the retiree worked for the company. The disadvantage to a defined-benefit plan, from the company's perspective, is the possibility that the investment portfolio will not perform as expected, forcing the company to make payments from its earnings, or, worse, to borrow money. See also: Defined-contribution plan.

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Defined benefit plan. A defined benefit plan -- popularly known as a pension -- provides a specific benefit for retired employees, either as a lump sum or as income for the rest of their lives. Sometimes the employee's spouse receives the benefit for life as well.

The pension amount usually depends on the employee's age at retirement, final salary, and the number of years on the job. All the details are spelled out in the plan.

However, an employer may end its defined benefit plan or replace this traditional source of retirement income with defined contribution or cash balance plans.

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Defined Benefit Plan

A defined benefit plan is any employer-provided retirement plan that is not a defined contribution plan (defined elsewhere). The most common type of defined benefit plan is a pension plan.