A defined benefit plan is a type of retirement plan where an employer promises a certain level of benefits to employees upon retirement. The benefit is usually based on factors such as years of service and salary.
A defined benefit plan is often contrasted with a defined contribution plan, in which employees contribute a set amount of money to their own retirement accounts. The benefits they ultimately receive depend on how well the investments in their accounts perform.
While a defined benefit plan may seem more lucrative to employees, it actually exposes the employer to more risk. This is because the employer is responsible for making sure there is enough money set aside to cover the promised benefits. If the investments in the plan perform poorly, the employer may have to contribute more money to make up the difference.
Overall, a defined benefit plan can be a good way to attract and retain employees. However, employers need to be aware of the risks involved and make sure they are prepared to handle them.
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