What is the plan of defined benefits?

The plan of defined benefits is the type of pension plan sponsored by the employer. The plan of defined benefits is the benefits determined by a formula that shows that the amount that the employee receives after retirement. The amount of the benefit is usually based on a number of factors, including the average salary of the employee before retirement, age at retirement and employment. The amounts of benefits may be a specific amount of dollar or a percentage of compensation.

Many people consider the plan defined as a traditional type of pension plan. The employer is usually responsible for contributing all contributions to the plan of defined benefits. In some cases, however, employees also contribute. The plans of defined benefits are usually found in larger companies. The employer is responsible for the decision -making and management of investment in the plan. Similarly, the employer takes over all investment risk. The tacts of the defined benefit plan are more likely to be collectively than on individual employees. The employer will answerHe will be able to finance the plan as needed, even at a time when the company cannot earn profits. In some cases, plans for defined enjoyment provide benefits to employees after the employee's death. Such details differ from society to society.

Three primary types of plans defined advantages are flat, unit and variable plans of advantages. The flat benefits plan requires the employer to pay a fixed amount of the dollar to all employees if the minimum number of years of service has been achieved. For example, a flat benefit plan could require a 30 percent of the average compensation part paid by employees over the last five years of employment. Alternatively, this type of plan could require a specific monthly payment to any employee who has worked for a company for ten or more years.

In the unit of unit benefits, the dose amount is determined by multiplying the percentage of compensation or hundreda new amount of dollar by the number of years of employment. For example, the advantage could be either five percent of the average compensation paid by employees, or an advantage of $ 50 per month for each year, the employee for the company worked. The actual amounts and percentages differ.

Variable benefits plan requires the employer to set up amounts of benefits in allocation of units for planning contributions. In this type of plan defined benefits, the amount of the benefit is based on the calculation of units assigned by employees after retirement. The value of the employee's units is proportional to the value of all units in the fund.