What is a defined benefit plan?

A defined benefit plan is one set up to provide a predetermined retirement benefit to employees or their beneficiaries.

There are three basic types of defined benefit plans:

1. Flat benefit plan all participants receive a flat dollar amount as long as a predetermined minimum years requirement has been met.
2. Unit benefit plan provides a benefit that is either a percentage of compensation or a fixed dollar amount multiplied by the number of qualifying years of service.
3. Variable benefit plan benefits are based on allocating units, rather than dollars, to the contributions to the plan. At retirement, the value of the units allocated to the retiring employee would be the proportionate value of all units in the fund.