Defined Benefit (DB) plans are considered “traditional pension” plans. Employee retirement payments are based on a pre-set formula and takes into account:
- Years of credited service
- Final average salary
- The plan benefit accrual rate (multiplier) determined by your employer
For Example: 10 (years of credited service) x $30,000 (final average salary) x .05 (accrual rate/multiplier) = $15,000 (annual pension benefit).
Depending on the plan chosen by your employer, you may be required to make contributions to assist with funding their retirement benefit.
How is a Defined Benefit plan funded?
- Employer contributions
- Employee contributions
- Earnings on investments
