What is a defined benefit plan?
A. Retirement plans generally fall under one of two categories: Defined Benefit Plan or Defined Contribution Plan. A Defined Benefit (DB) Plan uses a definite formula by which member benefits are calculated. Normal benefits with PSRS are calculated based on a multiplier, your years of service credit, and your salaries. Once determined, the benefit is paid for life. The retirement plan assumes responsibility for investment decisions. In contrast, in a Defined Contribution Plan (DC), an individual’s benefit is based on the contributions made to the plan and the investment earnings. The individual who owns the DC plan makes the investment decisions. An individual may outlive the funds available to them during retirement in a DC plan. An example of a DC plan is an Individual Retirement Account (IRA).
• A defined benefit plan is benefit-based and uses predictable criteria such as a pension determined by salary x length of service x factor. This portion of OPSRP provides a life pension funded by employer contributions. • The Pension Program has a normal retirement age of 65 (58 with 30 or more years of service) for general service members. And the Pension benefit is solely formula based, with a 1.5 percent factor for general service members.
A defined benefit plan is a type of employer-sponsored retirement plan. In a defined benefit plan, benefits are determined by a formula that indicates the amount an employee will receive upon retirement. The benefit amount is typically based on a number of factors, including the employee’s average salary before retirement, age at retirement, and length of employment. Benefit amounts can be a specific dollar amount or a compensation percentage. Many people consider a defined benefit plan a traditional type of type of pension plan. Usually the employer is responsible for making all contributions to the defined benefit plan. However, in some cases, employees make contributions as well. Typically, defined benefit plans are found in larger companies. A defined benefit plan does not require employees to make investment decisions. The employer is responsible for making decisions and managing investments for the plan. Likewise, the employer assumes all investment risk. The assets of a defined
