Defined-Benefit Retirement Funds
A defined-benefit retirement fund is a type of retirement plan that provides a guaranteed income to its members upon retirement. It is funded by employers and is typically based on a formula that takes into account the employee’s salary, years of service, and age. The employer is responsible for making contributions to the fund and managing the investments. The fund is designed to provide a steady stream of income to the employee after retirement.
History of Defined-Benefit Retirement Funds
Defined-benefit retirement funds have been around since the early 1900s. The first such plan was established in the United States in the 1920s. Since then, they have become increasingly popular as a way to provide retirement security for employees. In the United States, the Employee Retirement Income Security Act of 1974 (ERISA) established minimum standards for defined-benefit plans.
In recent years, defined-benefit plans have become less popular as employers have shifted to defined-contribution plans, such as 401(k)s. This shift has been driven by the increasing cost of providing defined-benefit plans, as well as the increasing complexity of managing them. Despite this, defined-benefit plans remain an important source of retirement security for many workers.
Comparison of Defined-Benefit and Defined-Contribution Retirement Funds
| Defined-Benefit | Defined-Contribution |
|---|---|
| Guaranteed income upon retirement | No guaranteed income upon retirement |
| Employer is responsible for contributions and investments | Employee is responsible for contributions and investments |
| Benefits are based on salary, years of service, and age | Benefits are based on contributions and investment returns |
Summary
Defined-benefit retirement funds are a type of retirement plan that provides a guaranteed income to its members upon retirement. They have been around since the early 1900s and are still an important source of retirement security for many workers. Employers are responsible for making contributions to the fund and managing the investments. For more information about defined-benefit retirement funds, visit the websites of the U.S. Department of Labor, the Internal Revenue Service, and the Pension Benefit Guaranty Corporation.
See Also
- Defined-Contribution Retirement Funds
- 401(k) Plans
- 403(b) Plans
- 457 Plans
- Pension Plans
- Retirement Savings Accounts
- Individual Retirement Accounts (IRAs)
- Annuities
- Social Security
- Medicare
