Defined Benefit Plan: What Does It Mean?
A defined benefit plan is a type of employer-sponsored retirement plan that promises a specific monthly benefit at retirement, calculated using a formula based on factors like salary history and years of service — rather than investment performance. This is the traditional pension model: the employer bears the investment risk and guarantees the payout. Defined benefit plans have become less common in the private sector, replaced largely by defined contribution plans like the 401(k), but remain prevalent in government and public education. Benefits are typically paid as a lifetime annuity.
