Typically, your employer calculates your defined benefit (DB) plan contributions each pay period and deducts them directly from your pay.
5 things to know about contributions
- Contributions are usually based on a percentage of your pay.
- You can deduct these contributions on your tax return.
- Your employer may be allowed to raise or lower the employee contribution rate depending on the funding requirements and terms of the plan.
- These funding requirements are determined by actuaries who review the plan periodically, typically every 3 years.
- Your employer also contributes to the plan. Your employer must fund at least 50% of the pension benefits you earn.
Entitlement to employer contributions
Some plans require you to be a plan member for a certain length of time (2 years is typical) before you are entitled to benefits related to your employer’s contributions. This is called “vesting.” If you leave the plan before you are vested, you will always get your own contributions back, with interest.