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 ?
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.
Between EGTRRA and PPA, a multitude of benefits is available to business owners engaged in profit-sharing and defined benefit plans, including the following:
While the defined benefit plan is not the magic solution for every client, it can provide a unique opportunity for those high-income small business owners looking to reduce the sting of possible year-end tax hikes -- with the added bonus of creating a substantial retirement nest egg in just a few years.
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.
Example: If Foxx retires in 2009 at age 65, and his high three-year average compensation was $60,000, his employer's defined benefit plan cannot provide a life or joint and survivor annuity of more than $60,000 per year.
In terms of employee appeal, defined benefit plans are highly valued by mid-to-late-career employees, while defined contribution plans are perceived to be of higher value to younger employees.
Participants often do not understand the Defined Benefit Plan as easily as they do other types of plans.
When the defined benefit plan terminated, all the assets were distributed to beneficiaries; there were no surplus assets.
The defined benefit plan produced the best pension benefit for Worker 1 who stayed in one job, and the lowest for Worker 2 who had five employers.
Federal intervention in this area is difficult to predict; however, to the extent such legislation does occur, it may make expansion of defined benefit plan benefits less likely in the public sector.
From a national saving perspective, the most serious attack on retirement saving came with an Omnibus Budget Reconciliation Act of 1987 provision, which limited the funding companies could provide for their defined benefit plans.
In an 8-to-1 decision, the Court in May 1993 ruled in favor of the government, restricting the ability of employers to make contributions of unencumbered property to a defined benefit plan.

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