A defined benefit pension is a retirement plan set up by a corporation, labor union, government, or other organization to provide retired employees with a specific income — either as a lump sum or as an annuity — for the rest of their lives.
The pension amount typically depends on the employee's age at retirement, final salary, and the number of years on the job. Details of the pension are explained in the plan document. An employee's surviving spouse is also entitled to receive at least 50% of the pension benefit for life unless he or she waives that alternative in writing.
Many traditional pensions — otherwise known as defined benefit plans — have been replaced by defined contribution or cash balance plans. In some of these arrangements, employers put money into retirement funds for their employees, without guaranteeing the retirement benefit the employee will receive. In others, employees defer current income into the plan, and the employer may or may not provide a matching contribution.