Defined-Benefit 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.
References in periodicals archive ?
A qualified defined-benefit plan is an employer-sponsored plan whereby business owners make contributions on behalf of their employees.
"The defined-benefit plan economics are shifting and will afford employers the opportunity for lower funding costs, thereby positioning [them] to once again become one of the most cost-effective methods of providing adequate retirement income," Rausser said.
A REPORT FROM the Employee Benefit Research Institute found that having a defined-benefit plan at age 65 reduces the risk of retiring with inadequate income for boomers and Generation X workers by almost 12 percentage points.
Whether the amount comes in the form of current income (the higher salary that must be paid to someone with a 401(k)) or a combination of current and anticipated future income (including the lower salary that may be paid to someone with a defined-benefit plan) shouldn't matter economically, assuming rational and well-informed employers and employees.
A defined-benefit plan is a qualified plan where a pre-determined formula sets the amount of retirement income received by a participant.
404(0), for tax years beginning after 2007, (22) the maximum deductible contribution for a defined-benefit plan is the greater of:
Although West Virginia teachers voted decisively last year to return everybody to a defined-benefit plan (all teachers hired since 2005 already are enrolled in it), the move was legally challenged and a circuit court judge overturned the planned merger in January.
companies, offers this advice for those considering a move to cash balance: "If you have plan that's not well-funded, the defined-benefit plan would need to be up to snuff from a funding perspective.
Firms that wish to switch from a traditional defined-benefit pension plan to a defined-contribution-type plan have a choice between converting to a cash-balance plan or replacing the defined-benefit plan with a full-fledged defined-contribution plan.
A cash-balance plan is a hybrid pension plan with features of both a defined-benefit plan and a defined-contribution plan.
Allowable deductions are also increased for employers that maintain both a defined-contribution and defined-benefit plan.
As part of the Colorado Coalition for Retirement Security, an alliance of 10 employee groups and unions, CEA members rallied against the governor, state treasurer, and legislators to fight a proposed referendum that would have kept new state employees out of the existing defined-benefit plan, which guarantees a set retirement income based on years of service and salary.