DB pension plan basics

A defined benefit (DB) pension plan promises to pay you a certain amount of monthly retirement income for life.

4 things to know about DB plans

  1. The amount of your pensionPension A steady income you get after you retire. Some pensions pay you a fixed amount for life. Others save up money for you while you are working. You use that money to create income after you retire.+ read full definition is based on a formula that usually takes into accountAccount An agreement you make with a financial institution to handle your money. You can set up an account for depositing and withdrawing, earning interest, borrowing, investing, etc.+ read full definition your earningsEarnings For companies, it’s the money they make and share with their shareholders. For investors, it’s the money they make from their investments.+ read full definition and years of service with your employer.
  2. In most plans, both you and your employer contribute.
  3. Your employer is responsible for investing the contributions to ensure there’s enough money to pay the future pensions for all plan members.
  4. If there’s a shortfall in the money needed, your employer must pay the difference.

Key point

A DB pension plan guarantees you retirement income for life.

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