Defined-Benefit 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.
References in periodicals archive ?
The common objections we hear about defined benefit plans are they are inflexible and place too much of a burden on the company.
However, the prevalence of defined benefit plan income for workers in the private sector will continue to decline, as companies freeze, close, or terminate defined benefit plans.
In 2011, only 10 percent of all private sector establishments provided defined benefit plans, covering 18 percent of private industry employees.
25, 2011 /PRNewswire/ -- Defined contribution plans, like 401(k)s, would cost taxpayers substantially more than defined benefit plans for public sector employees, according to a new study by Pension Trustee Advisors, a leading consultancy on public pension systems.
There are 586 employers on this year's Fortune 1000 list that sponsor defined benefit plans, and 208 have frozen at least one plan, according to New York-based benefit consultant Towers Watson.
If these plans are converted to cash balance defined benefit plans, lump-sum distributions may be limited or, in many cases, not available.
Robert Costrell and Michael Podgursky ("Peaks, Cliffs, & Valleys," features, Winter 2008) make a compelling case for states to shift public pensions away from defined benefit plans to defined contribution plans.
All qualified defined benefit plans are insured by the Pension Benefit Guaranty Corp.
For many years financial advisors have been avoiding defined benefit plans for small business owners but because of legislation changes in recent years, the advantages in both tax deductions and employee loyalty can make defined benefit plans a prudent choice.
PBGC is not funded by general tax revenues, but by insurance premiums set by Congress and paid by sponsors of defined benefit plans, investment income, assets from pension plans trusteed by PBGC and recoveries from the companies formerly responsible for the plans.
The airline said that this is in addition to the more than USD287m American Airlines has contributed to its defined benefit plans earlier this year.
Many of the remaining companies with defined benefit plans can't be relied on either, because their plans are underfunded.