Defined Benefit Plan 

A defined benefit plan is designed to provide a specific benefit amount at retirement. This is the traditional "pension" plan in which the employer bears the risk of providing the promised level of retirement benefits to participants. Provide a pre-defined annual retirement income for employees. Contributions are based on specific income requirements, along with actuarial variables such as years until retirement, life expectancy, compensation, etc.

Who Can Offer This Plan: Any size business.

Advantage:

 Allows employers to contribute more than other retirement plans. Allows employers to provide substantial predictable, retirement benefits based on a formula in the plan. Can produce a substantial retirement fund in a few years and is appropriate for employers who can make contributions based on actuarial calculations of the amounts necessary to pay the promised benefit.

Disadvantage: A defined benefit plan is more costly to administer because it requires the services of an Enrolled Actuary.

Administrative Expense: Higher than defined contribution plans.

Administrative Complexity:High.

Funding: Generally employer contributions.

Annual Contribution Limits: Employer's maximum and minimum contribution is determined actuarially and must be sufficient to pay the participant's benefits as they come due in future years.

Participant Loans: Generally not a feature of the plan.

In-service Withdrawals: Not permitted.

Vesting: Immediate or may vest over years of service not to exceed seven years.