Defined Benefit Plan
RetirementGlossary term
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
- PensionA 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 PlanA 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.
- AnnuityA 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.
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