What is a defined benefit plan?

A defined benefit plan is a retirement plan that promises you a specified monthly benefit at retirement, worked out by a formula the plan document spells out. The IRS also calls it a traditional pension plan. The formula is often based on your salary, your age and the number of years you worked for the employer.

It isn't an account balance. The IRS says the benefits aren't dependent on asset returns: what you own is the formula's promise, not a pot of money you can watch grow or shrink.

Photo of Ross Kilburn

Updated

Where you’ll see the word

  • A summary plan description

    The plan information federal law makes private plans give participants, including facts about plan features and funding, under ERISA as the IRS describes it.

  • A pension formula

    California's CalPERS, for example, multiplies service credit by a benefit factor by final monthly compensation to get a member's unmodified allowance.

Names you'll see on plan papers

  • Traditional pension plan The IRS's other name for it, in its retirement plan definitions. IRS
  • Single-employer plan, multiemployer plan PBGC's words for the two kinds of private plan it insures. PBGC
  • Cash balance plan A kind of defined benefit plan, not a different thing: the IRS says its formula uses contribution and earning credits and each participant has a hypothetical account. IRS

What a defined benefit plan means for you

Vesting is the first thing to find. The IRS says vesting in a defined benefit plan can follow a variety of schedules, from immediate to spread out over seven years, and that a plan can't retroactively decrease benefits. New York's state retirement system, for example, vests Tier 6 members once they have five years of credited service. Your own plan's schedule is in its summary plan description.

Who pays in is mostly the employer. The IRS says the employer generally makes most contributions; sometimes employee contributions are required, or voluntary ones are permitted. For a private plan, the federal law called ERISA sets minimum standards for participation, vesting, benefit accrual and funding, requires a claims and appeals process, and gives you the right to sue for benefits.

If the plan fails, a federal insurer steps in for most private plans. The Pension Benefit Guaranty Corporation says it insures most private-sector pension plans but not federal, state and local government pensions, military pensions, pensions of religious institutions, plans of small professional practices with fewer than 25 employees, 401(k) plans, IRAs or profit-sharing plans. When PBGC becomes trustee of a plan, it guarantees benefits only up to limits set by federal law; its maximum-guarantee tables apply to single-employer plans it pays as trustee, not to multiemployer plans. If PBGC is paying your pension, its number is 800-400-7242.

Questions about defined benefit plans

What's the difference between a defined benefit plan and a 401(k)?

A defined benefit plan promises the benefit; a 401(k) is a defined contribution plan, which the IRS defines as a plan in which the employee and/or the employer contribute to the employee's individual account. The Bureau of Labor Statistics notes that participation in defined benefit plans is often mandatory once you meet the eligibility requirements, while participation in defined contribution plans is often voluntary.

Can I take money out of a defined benefit plan early?

The IRS says a defined benefit plan generally may not make in-service distributions to a participant before age 59½, though a plan may permit participant loans. Our hardship withdrawal entry covers the 401(k) side.

What is final average earnings?

New York's retirement system generally averages a member's three highest consecutive years of earnings to calculate final average earnings.

Our pages on retirement money

Related terms

  • PensionA retirement plan that pays a benefit under a plan formula.
  • Defined Contribution PlanA retirement plan with an individual account whose value depends on contributions and investment results.
  • 401(k)An employer-sponsored retirement savings plan in which employees can contribute part of their pay.
  • Social SecurityA federal program that pays retirement, disability, and survivor benefits to eligible people and families.

Sources and method

This page uses none of our own data. The definition and plan rules come from the IRS and the Pension Benefit Guaranty Corporation pages listed above, opened on Oct 22, 2026. The state examples are CalPERS and the New York State and Local Retirement System, each describing its own plan only.

  • Internal Revenue Service · Defined benefit plan, at irs.gov
  • Internal Revenue Service · Retirement plans definitions, at irs.gov
  • Pension Benefit Guaranty Corporation · Pension insurance coverage, at pbgc.gov
  • Pension Benefit Guaranty Corporation · Maximum monthly guarantee tables, at pbgc.gov
  • Pension Benefit Guaranty Corporation · Contact PBGC, at pbgc.gov
  • New York State Comptroller · Retirement benefit summary, Tier 6 ERS, at osc.ny.gov
  • New York State Comptroller · Final average earnings, at osc.ny.gov
  • CalPERS · Service and disability retirement, at calpers.ca.gov
  • U.S. Bureau of Labor Statistics · Employee Benefits in the United States, March 2024, at bls.gov

We write with assistance from AI tools. Figures come from the data and sources named on this page.