Defined Benefit Plan
Financial term in the Retirement category
Definition
A retirement plan where the employer guarantees a specific monthly benefit at retirement based on a formula using salary and years of service. Traditional pensions are the most common type. The employer bears the investment risk.
Related Terms
Pension
A retirement plan funded by an employer that provides regular payments to employees after retirement. Increasingly rare in private sector, more common in government jobs.
Defined Contribution Plan
A retirement plan where employees and/or employers contribute to individual accounts, and the retirement benefit depends on contributions and investment performance. Examples include 401(k), 403(b), and 457(b) plans. The employee bears the investment risk.
Annuity
A financial product that provides a guaranteed income stream, typically used for retirement. You pay a lump sum or series of payments, and receive regular payments for a specified period or for life.
Frequently Asked Questions
What is Defined Benefit Plan?
A retirement plan where the employer guarantees a specific monthly benefit at retirement based on a formula using salary and years of service. Traditional pensions are the most common type. The employer bears the investment risk.
Why is Defined Benefit Plan important in personal finance?
Defined Benefit Plan is an important retirement concept that helps individuals make better financial decisions. Understanding Defined Benefit Plan can improve your financial planning and help you achieve your money goals.
How does Defined Benefit Plan relate to Pension?
Defined Benefit Plan and Pension are related financial concepts. A retirement plan funded by an employer that provides regular payments to employees after retirement. Increasingly rare in private sector, more common in government jobs.
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