Defined Benefit Plan

What is Defined Benefit Plan?

A defined benefit plan is an employer-sponsored retirement plan that guarantees a specified monthly benefit upon retirement, calculated using a formula based on salary history and years of service. The employer bears the investment risk and is responsible for funding the plan to meet its obligations. Defined benefit plans, commonly known as pensions, have become less prevalent in the private sector due to their cost and complexity, though they remain common in the public sector. They are regulated under the Employee Retirement Income Security Act and insured by the Pension Benefit Guaranty Corporation.