Defined Benefit Plan. A defined benefit plan is one in which the monthly retirement benefit to be provided at retirement is defined in the plan. Benefits will usually be defined as participant's compensation, service, and/or participation and are expressed as a monthly benefit commencing at the person's normal retirement age. A plan that gives a person a monthly pension for his or her life or equal to a certain amount of monthly compensation is a defined benefit pension plan.
In many cases, the actual payment of the benefit is in a form other than the plan's normal annuity form. These are alternate forms and they are equal to the normal form of benefit, one being a lump sum benefit payment of the real present value of the person's accrued benefit.
Since there is a yearly minimum funding that is required to be made to a Defined Benefit Plan, an employer has much less flexibility toward the annual contribution. For this same reason it can allow for much greater contribution than you will find in a Defined Contribution plan.
A defined benefit plan can allow for contributions extending beyond the limitations of profit sharing plans. This makes it an ideal plan for older employees wanting to conserve large amounts quickly, or for employers wanting to build a secure traditional retirement plan for their co-workers.
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