Defined benefit plan

This article does not receive scheduled updates. If you would like to help our coverage grow, consider donating to Ballotpedia. Contact our team to suggest an update.

Voting on Local Pensions
Local Ballot Measures
By state
By year
Hotspots Reports
Most recent edition
Original Case study
San Jose & San Diego
State-wide Measures

A defined benefit plan is a retirement benefits pension plan that guarantees a monthly or annual payment to retired employees based on a certain formula using years of employment, employee age and employee earnings. In a defined-benefit plan, because the retirement benefits are guaranteed, they do not depend on how much the employee contributes or how well pension fund investments perform. In a defined benefit plan contributions from employees and employers are generally put into one big fund, which is then invested. When the pension fund is not able to cover all the costs of benefits for retired employees, the retirees are still entitled to the check they were guaranteed, leaving costs that must be made up from an additional source and are the responsibility of the employer. This makes defined-benefit plans more risky for employers and more likely to lead to debt and unfunded pension liabilities. This type of retirement plan is in contrast to a defined contribution plan, in which retirement benefits are not guaranteed but depend on invested contributions from the employee and employer. Defined contribution plans, such as 401(k) plans, are not very risky for employers since there are no guaranteed benefits for which employers are responsible if investment performance falls short.

Many public pension systems use defined benefit plans. For example, California Public Employees' Retirement System (CalPERS), the agency in the California executive branch that manages public pensions, provides defined benefit plans. CalPERS is the largest pension fund in the nation, with assets amounting to $260.9 billion.

Background

Defined benefit plans provide a guaranteed, life-time retirement benefit based on an employee's years of service and salary, the amount of which is calculated differently by different states. Although most statewide plans require employee contributions, the retiree's benefit is not tied directly to his/her contribution amount. The majority of public pension plans are defined benefit plans.^[1]

In 2009, governments provided defined benefit plans to 84 percent of state and local workers compared to the 21 percent of private-sector employees that were given this type of pension plan.^[2]

See also

• Local pensions on the ballot

External links

• The Impact of Closing the Defined Benefit Plan at CalPERS

Footnotes

v • e Pension policy Pension background Public pension eligibility • Public pension disclosure • State government pension liabilities • Local government public pensions • Public pension crisis • Public employee benefits • State budgets • Cost of living adjustment • Rate of return • Pension system • Defined Benefit Plan • Defined Contribution Plan • Public pension health by state Local pension measures Pension measure articles • Pension Hotspots Report • Original case study on San Jose and San Diego pensions State public pension systems Alabama • Alaska • Arizona • Arkansas • California • Colorado • Connecticut • Delaware • Florida • Georgia • Hawaii • Idaho • Illinois • Indiana • Iowa • Kansas • Kentucky • Louisiana • Maine • Maryland • Massachusetts • Michigan • Minnesota • Mississippi • Missouri • Montana • Nebraska • Nevada • New Hampshire • New Jersey • New Mexico • New York • North Carolina • North Dakota • Ohio • Oklahoma • Oregon • Pennsylvania • Rhode Island • South Carolina • South Dakota • Tennessee • Texas • Utah • Vermont • Virginia • Washington • West Virginia • Wisconsin • Wyoming Pension terms and definitions Cost of living adjustment • Defined Contribution Plan • Defined Benefit Plan • Employee and employer contributions • Rate of return • Liabilities and assets • Pension fund • Pension spiking • Unfunded liabilities