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Defined-Benefit Pension 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.

defined-benefit pension plan
A pension plan in which retirement benefits rather than contributions into the plan are specified. Thus, a retired employee who has reached a certain age with a given number of years of service and has earned a certain income is entitled to a specific monthly pension payment.


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We need to retool defined-benefit pension plans [so they are] affordable for employers, transferable from job to job, and cost-effective.
As Fran Hawthorne details, defined-benefit pension plans are now the exception rather than the rule in American business.
Continental Airlines has contributed another $50 million to its defined-benefit pension plans, for total payments this year of $261 million.
 
 
 
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