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Plan Insight

MAY 2010 Newsletter

Defined Benefit Plans

To be precise, a defined benefit plan is defined in the Internal Revenue Code as a retirement plan "other than an individual account plan."  So, if the plan isn't a DC plan, it must be a DB plan.  But, as noted earlier, the major determinant of a DB plan is that the benefits be "definitely determinable," generally by a specific (“defined”) formula in the plan document.

In theory, what you "know" at a given point is the benefits due, based on that formula (though that may be easier said than done).

Those benefits are generally paid based on three factors: the worker’s age, service, and compensation.  Those benefits paid may be based on Social Security benefits, and may or may not be adjusted for subsequent cost-of-living adjustments, based on the terms of the plan.

In the corporate sector, these programs are insured by the Pension Benefit Guaranty Corporation (PBGC), and the costs of these plans are borne by the employer, including the need to hire actuaries and pay insurance premiums (PBGC), in addition to regular operating costs.  In the public sector, these programs also may have an employee-contributory feature.

 

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Information is provided for review and consideration only. Please consult legal and tax advisors for practical advice pertaining to your business and personal situations.

This page was last reviewed and/or updated on Monday, December 19, 2011 04:17 PM

 
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