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Simple English definitions for legal terms
defined pension plan
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A quick definition of defined pension plan:
A defined pension plan is a retirement plan that an employer sets up for their employees. It promises to pay a specific amount of money to each employee when they retire. The employer is responsible for making sure there is enough money in the plan to pay these benefits. This is different from a defined-contribution plan, where the employer and employee both contribute money to an account that the employee manages themselves. A defined pension plan is also known as a fixed-benefit plan.
A more thorough explanation:
A defined pension plan is a type of retirement plan that promises specific benefits to each employee. This means that the employer guarantees a certain amount of retirement income to the employee, usually for life, after they retire.
For example, if an employee works for a company for 30 years and the defined pension plan promises them a retirement income of $50,000 per year, the employer is responsible for paying that amount to the employee every year after they retire.
Defined pension plans are different from defined-contribution pension plans, where the employer and employee both 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 complies with federal law and allows employees to receive tax benefits for contributions and tax-deferred investment growth.
Overall, defined pension plans provide employees with a sense of security and stability in their retirement income, as they know exactly how much they will receive each year.