Defined benefit plans offer guaranteed salary-like payments and were historically offered to entice workers to stay with one company for years or even decades. It is a qualified employer-sponsored retirement plan with certain tax benefits under the law. The plans are usually funded entirely by employer contributions, although in rare cases employees may be required to make contributions.


Types of Defined Benefit Plans

There are two main types of defined benefit plans: pensions and cash balance plans. A pension is a guaranteed monthly benefit starting at retirement, based on a formula that factors in how long a worker remained with a company and how much they earned. Cash balance plans grant employees a set account balance at retirement or when they leave the company, instead of a set monthly benefit. The cash balance plan generally calculates benefits based on your total working years with a company, not just your last or highest earning period. 


Defined Benefit Plan Payment Options

When it comes time to collect your retirement, you typically receive payment in the form of a lump sum (payout or rollover to IRA) or an annuity (see options below)


  • Single life payment. You receive a monthly payment for the rest of your life, and if you die, your beneficiaries receive no further payments.
  • Single life with term certain. You receive a monthly payment for the rest of your life.  However, if you die before the term period is over, your beneficiaries receive payments for the remainder of the term period.
  • Joint and Survivor. When you die, your surviving spouse will get monthly payments for the rest of their life that are equal to a pre-selected percentage of your original annuity.  


For additional ways to save for retirement, contact a WFA Advisor.