Defined Benefit Plans
In a Defined Benefit Plan, the employer must ensure enough funding to pay the benefits people are due to receive in retirement.
The employer's contribution amount may vary yearly, but an actuarial calculation typically determines it. The payout from a Defined Benefit Plan is generally is a fixed amount the employee receives monthly upon retirement. This amount doesn't fluctuate based on the performance of investments, making the Defined Benefit Plan less risky for employees than other retirement plans, like the Defined Contribution Plan (e.g., 401(k) plan), where the payout can vary based on investment returns.
Important Note
In the United States, Defined Benefit Plans are guaranteed by the Pension Benefit Guaranty Corporation (PBGC), a federal agency, up to certain limits.
It's important to note that Defined Benefit Plans have become less common in recent years as many employers have shifted to Defined Contribution Plans, largely due to the high costs and financial risks associated with funding Defined Benefit Plans.