Life · Chapter 11 · Employer Plan Types
Defined Benefit Plan (Pension)
Definition
Guarantees a specific future benefit set by formula — typically years of service × salary — paid for life at retirement. The EMPLOYER bears the investment risk: if returns fall short, the employer still owes the promised benefit. Must provide definitely determinable benefits and systematic payments over years.
Example
1.5% × 30 years of service × $80,000 final average salary = $36,000/year for life, regardless of markets.
Exam tip
The word 'pension' on the exam = defined BENEFIT plan.
Easy to confuse with
These are what this term gets tested against — if you can't tell them apart cold, drill the contrast.
Related terms