Defined benefit plan is a kind of retirement plan that is funded or backed by the employer and in such a retirement plan the benefits are defined on a number of different factors. These factors may include the sales target achieved by the employee, the overall performance of the employee and the time duration for which the employee has served the employer. Investment risk and portfolio management for a defined benefit plan is completely under the control of the company in which the employee is working or was working. There are also certain restrictions that how employer can withdraw funds from defined benefit plan without facing any penalties from the companies. The defined benefit plan is also known as qualified benefit plan or non-qualified benefit plan.
The defined benefit plan is different from a number of other pension plans where the pay outs of the pension plan is somewhat dependent on the amount of return that is calculated over the invested funds. Consequently, owner will need to plunge into the company’s earnings in the occurrence that the proceeds from the investments dedicated to backing the employee’s retirement result in a financial support deficit. The payouts completed to retiring employees contributing in defined-benefit plans are determined by more personalized factors, like length of employment.
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