A defined pension plan, also known as a fixed-benefit plan, is a retirement plan established by an employer for their employees. It guarantees a specific amount of money to each employee upon retirement. The employer bears the responsibility of ensuring that there are sufficient funds in the plan to fulfil these benefits. This differs from a defined-contribution plan, where both the employer and employee contribute to an account that the employee oversees.
A defined pension plan is a retirement plan that ensures specific benefits to each employee. This means that the employer promises a certain amount of retirement income to the employee, typically for their entire life, once they retire. For instance, if an employee works for a company for 30 years and the defined pension plan guarantees them an annual retirement income of $50,000, the employer is obligated to pay that amount to the employee every year after retirement. Defined pension plans differ from defined-contribution pension plans, where both the employer and employee contribute to a retirement account, but the retirement income is not guaranteed. One example of a defined pension plan is the noncontributory pension plan, where only the employer contributes to the retirement plan. Another example is the qualified pension plan, which adheres to federal law and allows employees to receive tax benefits for contributions and tax-deferred investment growth. Overall, defined pension plans offer employees a sense of security and stability in their retirement income, as they know precisely how much they will receive each year.
A defined pension plan is a retirement plan in which an employer promises to pay a specific amount of money to an employee upon retirement, based on factors such as years of service and salary history.
Unlike other retirement plans such as 401(k)s or IRAs, a defined pension plan guarantees a specific benefit amount to the employee upon retirement, regardless of investment performance.
In most cases, an employer has the right to modify or terminate a defined pension plan, as long as they follow certain legal requirements and provide notice to the employees affected.
If an employer terminates a defined pension plan, they are typically required to provide employees with the option to receive a lump-sum payment or transfer their benefits to another qualified retirement plan.
In general, employees cannot withdraw funds from a defined pension plan before reaching the plan’s designated retirement age, unless they meet certain qualifying events such as disability or financial hardship.
Yes, defined pension plan benefits are generally taxable as ordinary income when received by the retiree. However, there may be certain exceptions or deductions available depending on the individual’s circumstances.
Yes, a defined pension plan can be subject to division in a divorce. The non-employee spouse may be entitled to a portion of the pension benefits, which can be achieved through a qualified domestic relations order (QDRO).
If an employer goes bankrupt, the defined pension plan may be at risk. However, there are federal protections in place, such as the Pension Benefit Guaranty Corporation (PBGC), which provides limited insurance coverage for certain pension plans.
In most cases, employees cannot contribute additional funds to a defined pension plan. The employer is responsible for funding the plan and determining the benefit amount based on the plan’s formula.
Yes, employees can receive both Social Security benefits and a defined pension plan. However, the amount of Social Security benefits may be reduced if the employee is also receiving a pension from work not covered by Social Security, such as a defined pension plan.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 17th April 2024.
To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.
- Page URL:https://dlssolicitors.com/define/defined-pension-plan/
- Modern Language Association (MLA):Defined Pension Plan. dlssolicitors.com. DLS Solicitors. May 09 2024 https://dlssolicitors.com/define/defined-pension-plan/.
- Chicago Manual of Style (CMS):Defined Pension Plan. dlssolicitors.com. DLS Solicitors. https://dlssolicitors.com/define/defined-pension-plan/ (accessed: May 09 2024).
- American Psychological Association (APA):Defined Pension Plan. dlssolicitors.com. Retrieved May 09 2024, from dlssolicitors.com website: https://dlssolicitors.com/define/defined-pension-plan/
Our team of professionals are based in Alderley Edge, Cheshire. We offer clear, specialist legal advice in all matters relating to Family Law, Wills, Trusts, Probate, Lasting Power of Attorney and Court of Protection.
All author posts