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 the employer

For Example: 10 (years of credited service) x $30,000 (final average salary) x .05 (accrual rate/multiplier) = $15,000 (annual pension benefit).

Employers who place a high value on retaining employees for long periods of time have often elected to utilize a DB plan.

Employees who desire long term employment stability are attracted by a DB retirement plan that allow them to orderly plan for their retirement. When employees recognize the overall value of a DB plan offered by their employer and when employers can recognize that a DB plan will help facilitate tangible economic growth with highly satisfied and highly dedicated employees, a DB plan can be a sustainable and cost-effective benefit supported by both parties. Employees may be required to make contributions to assist with funding their retirement benefit (decided by employer’s board).

How is a defined benefit plan funded?

• Employer contributions
• Employee contributions
• Earnings on investments