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Defined Benefit Plans

Defined Benefit Plans

The type of benefit plan that an employee receives is usually dependent on where he/she is employed. Many large corporations and government agencies offer their employees defined benefit plans. A defined benefit plan will ensure that retired employees are provided with pension payments every month for the rest of their lives.

Unlike other types of pension programs, a defined benefit plan is not dependent upon an individual's monetary contribution to a retirement fund. The responsibility and the risk associated with defined benefit plans fall exclusively to employers. Thus, an employer is obligated to ensure that his/her employees continue to receive the promised benefits, and a retired employee does not need be concerned that his/her payments will cease or that his/her savings will be depleted.

When an employee is promised a defined benefit plan, the employer's contribution to this fund will be determined by a formula. This formula will take into account an employee's years with a company, life expectancy, probable retirement age, and any potential interest ratesdefined contribution plansPension Benefit Guaranty Corporation.

Therefore, if an employer experiences unforeseen troubles and is unable to provide the retiree with the benefits that he/she was promised, this federal entity will ensure that he/she receives benefits. If an employee leaves the company before he/she reaches the age of retirement, the retirement funds that he/she has earned while employed at a corporation or agency will still be provided to him/her once he/she retires.

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