What is a defined benefit (DB) plan?

Understanding defined benefit (DB) plans, commonly referred to as a pension, can help you better plan your retirement. A pension, a defined benefit plan: Both terms refer to a unique program, less used now than in the past, that offers employees a retirement income stream after they work a certain number of years.

Are defined benefit plans better than defined contribution plans?

Defined benefit plans offer greater assurance of some returns, although you could achieve higher earnings by managing your own retirement funds. Defined contribution plans are much more common than defined benefit plans, with 43% of private sector, state and local government workers participating in one.

What are the advantages and disadvantages of a defined benefit plan?

The advantages of defined benefit plans are fixed payout, protection from market fluctuations, tax benefits, and increased employee retention. The disadvantages include the limited potential for growth of investments, vesting period, and employer cost.