Defined Benefit Plan

A defined benefit plan - popularly known as a pension - provides a specific benefit for retired employees, either as a lump sum or as income for the rest of their lives. Sometimes the employee's spouse receives the benefit for life as well.

The pension amount usually depends on the employee's age at retirement, final salary, and the number of years on the job. All the details are spelled out in the plan.

However, an employer may end its defined benefit plan or replace this traditional source of retirement income with defined contribution or cash balance plans.

A retirement plan through which employers and employees contribute to a fund for which a clearly defined and guaranteed level of benefit will be paid to retirees. Promises specified annuity benefits, typically in the form of a monthly retirement pension based on levels of compensation and years of service. Contributions are actuarially calculated to provide annuity benefits. These annuity benefits are paid for a retiree’s lifetime. SCRS and PORS are defined benefit plans.