The Original Retirement Plan
In the past, a retiring worker often received a “pension” that paid him a certain amount of money every month for the rest of his life.
These “defined benefit” plans — so called because they spelled out exactly how much the worker would receive each month — became less popular in the 1980s as “defined contribution” plans like the 401(k) became more common. Today, employers may still offer defined benefit plans as an excellent way to reward long-term service, maximize benefits and facilitate special early retirement programs.
A defined benefit plan generally promises you a monthly benefit at retirement. The plan usually states the monthly benefit you will receive during retirement as a percentage of salary or flat dollar amount, multiplied by your years of service.
You generally do not contribute to this type of plan. Instead, the employer will make regular contributions to the plan according to rules of the Pension Benefit Guaranty Corporation. Contributions are invested by The Standard and grow through the years. The goal is to ensure that the plan has sufficient funding to meet your specified income needs at the time of your retirement.