Defined Benefit Pension Plans
Employer Guarantees Future Benefits
A defined benefit pension plan promises employees a specified retirement benefit based on factors such as salary, years of service, and age. The employer bears the investment and actuarial risks associated with providing these future benefits.
- Employer promises future retirement benefits.
- Benefits often depend on years of service.
- Employer bears investment risk.
- Actuarial assumptions are required.
Note
Defined benefit accounting is considerably more complex than defined contribution accounting.
Summary
Defined benefit plans create long-term obligations that require actuarial measurement.