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What is a defined benefit pension plan?

Answer»

A defined benefit pension plan is a type of pension plan in which an employer/sponsor promises a specified pension payment, lump-sum (or combination thereof) on retirement that is PREDETERMINED by a formula BASED on the employee's earnings history, TENURE of service and age, rather than depending directly on individual INVESTMENT returns. Traditionally, many governmental and public entities, as well as a large number of corporations, provided defined benefit plans, sometimes as a means of compensating workers in lieu of increased PAY.



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