Defined Benefit Plan Definition
A defined benefit plan, also known as a traditional pension plan, is a retirement plan where the employer guarantees a specific annual income for the employee based on various factors. This includes years of service, final salary, and age. The employer bears all the risks associated with funding the plan.
Some defined benefit plans also offer the option for employees to receive a lump-sum payment upon retirement. However, it is important to note that while federal pension insurance protects those who choose the annual income option, those who opt for a lump-sum payment are responsible for managing their funds effectively.
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