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.

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.

How long does a defined benefit pension plan last?

In most cases, an employee receives a fixed benefit every month until death, when the payments either stop or are assigned in a reduced amount to the employee’s spouse, depending on the plan. A defined-benefit pension plan requires an employer to make annual contributions to an employee’s retirement account.