Defined Benefit Plan
A pension plan that guarantees a specific monthly benefit at retirement, typically based on salary and years of service.
Defined Benefit Plan is a term from U.S. pension regulation and actuarial practice — typically a line item on IRS Form 5500, a concept in actuarial valuations, or a federal pension-insurance term from PBGC rules. The definition here is the practical participant-facing meaning, anchored in how the term actually appears in the data this site uses. Understanding Defined Benefit Plan is part of reading pension data defensibly. The underlying technical definition matters less than the participant-relevant interpretation: does this concept signal funded-status pressure, benefit-modification risk, or routine actuarial bookkeeping?
Each plan page on PensionWatch surfaces the Defined Benefit Plan-relevant numbers for that specific plan, so the general definition here translates into concrete data on the per-plan pages you actually use.
In Detail
A defined benefit (DB) plan is the traditional pension where the employer promises a specific retirement benefit calculated by a formula, usually a percentage of final average salary multiplied by years of service. For example, a plan might offer 2% per year of service times the average of the final three years' salary. An employee with 30 years of service and a $80,000 final salary would receive $48,000 annually (2% x 30 x $80,000). The employer bears all investment risk and is responsible for contributing enough to fund the promised benefits.
DB plans have been declining in the private sector since the 1980s, with most Fortune 500 companies freezing or terminating their plans in favor of 401(k) plans. However, they remain the dominant retirement vehicle for public-sector workers including teachers, police, firefighters, and other government employees. About 80% of state and local government workers still participate in defined benefit plans, covering roughly 20 million active members.
Frequently Asked Questions
What does Defined Benefit Plan mean in pension finance?
A pension plan that guarantees a specific monthly benefit at retirement, typically based on salary and years of service.
Why does Defined Benefit Plan matter for my retirement?
A defined benefit (DB) plan is the traditional pension where the employer promises a specific retirement benefit calculated by a formula, usually a percentage of final average salary multiplied by years of service. For example, a plan might offer 2% per year of service times the average of the final...