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 ?
9 January 2018 - Pennsylvania, US-based retirement and college savings services provider Ascensus has acquired California, US-based defined benefit plans administrator Dedicated Defined Benefit Services (Dedicated DB) to boost benefit plan expertise, the company said.
Cash balance plans will become even more popular as plan sponsors question whether defined contribution (DC) plans can facilitate retirement income like defined benefit plans do, according to industry experts.
Traditional defined benefit plans, structured to provide a lifelong pension, have become rare in the private sector.
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.
The maximum compensation limit used to calculate contributions or benefits for defined contribution plans and defined benefit plans is $255,000 (as indexed for 2013).
In 2011, only 10 percent of all private sector establishments provided defined benefit plans, covering 18 percent of private industry employees.
More than half of the companies in the survey with defined benefit plans said they have converted to hybrid plans.
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.
Compared with traditional defined benefit plans cash balance plans generally provide greater benefits to younger employees and those with shorter service (but at a higher cost), and lower benefits to older, longer service employees (at lower cost).
If these plans are converted to cash balance defined benefit plans, lump-sum distributions may be limited or, in many cases, not available.
Actuarial and PBGC aspects of defined benefit plans result in higher installation and administration costs than for defined contribution plans.