Also known as pension plan. A qualified plan under the Internal Revenue Code of 1986 (Code) that provides a definite formula under which the amount of a participant's pension benefit is determined. In defined benefit plans, the employer bears the investment risk because its contributions are actuarially determined each year based on the benefit formula and factors that include:

Benefits in most defined benefit plans are guaranteed by the Pension Benefit Guaranty Corporation up to a minimum level determined annually. Defined benefit plan sponsors are assessed an annual premium to fund the guaranty.

In recent years, a new type of defined benefit plan, a cash balance plan, has become more prevalent for larger companies. Given the employer costs associated with defined benefit plans, many employers are freezing or terminating these plans. For more information on freezing defined benefit plans, see Practice Note, Freezing Defined Benefit Plans.