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The Advantages of a Defined Benefit Plan

Defined benefit pension plans provide a fixed, pre-established benefit for employees at retirement. Employers can contribute (and deduct) more than under other retirement plans. In addition, a defined benefit plan provides a predictable retirement benefit.

Defined benefit pension plans offer workers a number of advantages when compared to other workplace retirement plans. They provide workers with a predictable and secure benefit for life.

Predictable Benefits

• Employees are promised a specific benefit at retirement.
• Employees can know in advance what benefits they will receive
• The benefits of employees receive, not subject to the fluctuations of the stock and bond markets
• Employers, not employees, are responsible for providing the retirement benefits, and the benefits are not dependent upon the amount of salary workers are willing or able to contribute

Secure Benefits

• PBGC pays the employee’s pension up to guaranteed limits
• If the employer cannot afford to pay the benefits or goes out of business. In most cases, the PBGC guarantee covers all of the earned benefit
• An employee can earn a reasonable retirement benefit under a defined benefit plan, even if the employee has not had an adequate retirement plan

Lifetime Benefits

• A defined benefit pension plan must offer to pay an annuity, a monthly benefit, for the life of a retired employee, no matter how long the worker lives. If the value of the benefit is $5,000 or less, the plan may pay the benefit in a single payment
• If a employee is married, a defined benefit plan must also pay an annuity to the worker’s surviving spouse for the spouse’s life, unless the worker and spouse elect otherwise.

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