What is a defined benefit pension plan?

“A defined benefit plan is a type of pension plan that is fully funded by employer contributions and is a promise to pay benefits at retirement based on various factors such as age, salary and years of service with the company,” says Valerie McClendon, a financial advisor at Boston Wealth Strategies.

What are the different types of defined benefit plans?

There are two main types of defined benefit plans: pensions and cash balance plans. People typically understand a defined benefit plan to be a pension: A guaranteed monthly benefit starting at retirement, based on a formula that factors in how long a worker remained with a company and how much they earned.

Are defined benefit plans becoming less common?

In an age of defined contribution plans like 401 (k)s, defined benefit plans are becoming less and less common, despite the retirement certainty and security pension plans can offer. How Does a Defined Benefit Plan Work?