Defined Benefit Plan
A Defined Benefit plan promises to pay employees a certain amount of income at retirement. Contributions are made by the employer on a pre-tax basis and are intended to grow so there will be adequate funding at retirement. Employer contributions are based on a benefit formula stated in the plan that must be calculated by an actuary. In a Defined Benefit plan, the risk of the investment lies with the employer, as no matter how much the employer contributes, a participant is still guaranteed a specific retirement benefit.
Advantages:
- Increased employer contributions compared to a defined contribution plan