How does a defined benefit pension plan work?
In a 401(k) plan, contributions accumulate with interest in an individual account until retirement. In a defined benefit plan, however, there are no such individual accounts. The plan defines a monthly benefit beginning at retirement and payable for life. In practice, most participants choose to receive the lump sum present value of this monthly benefit. Taxes on this lump sum value can be further deferred by rolling the distribution over to an IRA.
Related Questions
- Will participation in a defined benefit plan (state pension plan such as CalSTRS in California or TRS in Texas) affect ones ability to contribute the maximum elective deferral limit to a 403(b) plan?
- Where are employee contributions to a defined benefit pension plan entered?
- What is a 412 Split Funded Defined Benefit Pension Plan?
