Defined Benefit Pension Plan Basics
A defined benefit pension plan is one of the most complex types of retirement plans and allows for little or no flexibility in employer contributions. Its main features are:
Defined Benefit Pension Plan Reasons for Establishment: To reward older employees more favorably than younger employees and to produce a benefit related to retirement needs.
Defined Benefit Pension Plan Contribution: The contribution is the amount necessary to meet funding requirements and is actuarially determined.
Defined Benefit Pension Plan Allocation of Benefit Among Participants: This is often weighted more favorably to older employees.
Defined Benefit Pension Plan Forfeitures: This reduces employer cost.
Defined Benefit Pension Plan Investments: Employers bear the financial risk of favorable or unfavorable investments.
Defined Benefit Pension Plan Distributions: Generally made at normal or early retirement age, although smaller defined benefit plans frequently allow for payment on termination of employment.
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