Defined benefit plan


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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

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 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.

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.
References in periodicals archive ?
Though defined benefit plans, in particular are on the decline in the private sector, from the perspective of pension plan members, they are considered optimal because the members know how much they will receive when they retire and the company assumes the risk of plan losses (Woodger, 2009).
The percentage of wage earners whose primary pension in 2012 was a defined benefit plan, with 78% primarily relying upon a defined contribution plan.
Our opinion is that the defined benefit plan has become an overlooked, underutilized planning strategy to help small-business owners reduce their income tax, diversify their wealth, reduce dependence on business equity and replace business income for their future financial stability.
* Defined benefit plan coverage is relatively more prevalent in the Middle Atlantic and East North Central regions, perhaps associated with certain industries or higher concentrations of union workers.
"Defined benefit plans sent a very clear message when the employee was supposed to leave the company," Noonan says.
The arrangement also provides a minimum benefit for hybrid defined benefit plans, such as cash balance plans, which is a minimum percentage of contributions on a sliding scale that goes up by age.
As defined benefit plans, they allow for age-weighted retirement contributions and the inclusion of life insurance without a reduction in retirement benefits.
It is even possible for a defined benefit plan to become overfunded, in which case employer contributions must be suspended for a period of time.
The more traditional retirement plan is a defined benefit plan, which is usually funded entirely by employer contributions.
The main benefit of a defined benefit plan for a small business owner is to reduce the owner's tax burden but there may be other significant benefits.
The state retirement plan is a final-pay, defined benefit plan. Faculty members who are enrolled in the state plan are required to contribute 6.0% of earnings to this pension plan.

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