Defined Benefit Plan - Explained
How ERISA qualifies a Defined Benefit Plan
If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.
- Marketing, Advertising, Sales & PR
- Accounting, Taxation, and Reporting
- Professionalism & Career Development
Law, Transactions, & Risk Management
Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
- Business Management & Operations
- Economics, Finance, & Analytics
What is a Defined Benefit Plan?
This is the most common retirement plan sponsored by employers. In this plan, the employee benefits are defined by their employment tenure, salary record, and age. It is not directly dependent on individual investment returns. The employer is responsible for managing the portfolio and all the investment risks. There are strict rules regarding the withdrawal of this fund.
Back To: HUMAN RESOURCES, EMPLOYMENT, & LABOR
How a Defined-Benefit Plan Works
This plan is named defined benefit plan because both the employer and the employee know the computing formula for this benefit plan, in advance. The employer sets aside a specific amount of money regularly in a separate tax-deferred account for all the employees qualified to get this benefit. As opposed to the pension funds, here the payment amounts do not depend on investment return. As it is the responsibility of the employer to manage the plans investment and take all the decision, the risk management is also done by them. Whereas, in the case of the pension fund the employer needs to assume the responsibility of poor returns resulting in funding deficit and it is their obligation to compensate the gap. Under the defined benefit plan, on the retirement, the employee receives a specific benefit or payout. There are different payment options attached to this plan. It can be a fixed monthly payment until death, that is called single-life annuity. A plan can also provide qualified joint and survivor annuity which means a specific pay until death and thereafter a specific benefit for the surviving spouse. Working extra years after the age of retire naturally increases the benefit amount as the amount depends on the service tenure and the final salary drawn. This plan is also called defined benefit pension plan and the formula for computing the amount is known as the career average benefit formula, career average formula or career earnings formula.
- Employment Law (Intro)
- Who is an employee under the employment law?
- What characterizes the employer-employee, At-Will relationship?
- What are the major employment laws?
- What are the taxation requirements imposed upon employers?
- What is the Fair Labor Standards Act (FLSA)?
- Exempt Employee
- NonExempt Employees
- Family Medical Leave Act (FMLA)?
- Worker Adjustment and Retraining Act (WARN Act)?
- Occupational Safety and Health Act (OSHA)?
- Employee Retirement Income Security Act (ERISA)?
- Active Participant Status
- Defined Benefit Plan
- Pension Plan
- Accumulated Benefit Obligation
- Defined Contribution Plan
- Cash Balance Plan
- Pension Benefit Guaranty Corporation
- Blackout Period
- Benefit Allocation Method
- Multinational Pooling
- DB(k) Plan Definition
- Employee Contribution Plan
- Unit Benefit Plan
- Top Hat Plan
- Non-Discrimination Rule
- Alternative Minimum Cost Method
- Consolidated Omnibus Budget Reconciliation Act (COBRA)?
- Health Insurance Portability and Accountability Act (HIPAA)
- Workers Compensation Laws?
- Workers Compensation Coverage A Definition
- Workers Compensation Coverage B Definition
- Federal Unemployment Tax Act
- State Unemployment Tax Act
- Voluntary Termination
- Employment Verification Laws?
- Form I-9
- Workplace Privacy Laws?
- Background Checks
- Davis-Bacon Act
- Loudermill Rights
- Work Opportunity Tax Credit
- Work for Hire Agreement (Independent Contractor Agreement)
- Engagement Letter Definition
- Non-Compete Agreement
- Non-Solicitation Clause
Wrongful Termination Claim
- What are labor laws?
- Organized Labor
- Collective Bargaining Agreement
- Labor Union
- What are the major labor laws?
- Department of Labor
- What is the National Labor Relations Act?
- Unfair Labor Practice
- Right to Work Laws
- Labor Management Relations Act
- Labor Management Reporting and Disclosure Act