A defined benefit plan is a type of retirement plan that computes an annuity at retirement based on a formula that typically takes into account salary and years of service. The benefit is usually expressed (or “defined,” hence the term) in terms of an annual annuity payable at age 65. There may be other payout options and starting dates, which would require adjustment to the annual amount. The advantage of a defined benefit plan is that the annuities are “pooled” so that benefits can be paid for an individual’s lifetime without the risk of outliving one’s retirement savings.
