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Defined-Benefit Plan
Defined-Benefit Pension Plan
A retirement plan in which contributions are based on what is needed to provide a determinable future benefit to the plan participants
Employer Contribution Limits
- Annual benefits are limited to the lesser of $230,000 or 100% of the employee's highest three years' (consecutive) compensation (indexed for 2020).
- Annual compensation taken into account for benefit calculations is $285,000 (indexed for 2020).
- Contribution amount is based on actuarial assumptions and computations; consequently, an actuary must determine the plan deductible contribution limit.
Key Points
- Allows an employer to create substantial retirement benefits for employees.
- Can be paired with a defined contribution plan to provide additional benefits.