DEFINED BENEFIT PENSION MAXIMIZATION

Defined Benefit Pension Maximization

If you don’t already know them, you might want to look into the differences between a defined-contribution plan—such as a 401(k)—and a defined-benefit pension plan. Defined benefit pensions are rarer these days, but they do still exist. If you have a defined benefit pension, you need to understand how it works, and what the rules are as it relates to your retirement income plan.
A defined-benefit pension plan, provides a specified payment amount. They are also employer-sponsored, which means the employer, not the employee, is responsible for the investment risks associated with the plan. For a defined-contribution plan, the employee is responsible.¹

Because defined benefit pensions are guaranteed by the employer, they require a complex administration, including insurance and actuarial projections; this has made them almost completely obsolete as employers move toward defined-contribution plans like 401(k)s.¹

Beyond these distinctions, defined-benefit plans also have different ways that employees can receive their payments in retirement. There could be lump-sum payments or payments available over time. There is the U.S. federal government, which insures defined-benefit pensions; there are tax considerations and much more.

A financial adviser might be able to help you navigate your defined benefit pension if you have one as part of your retirement income plan.

 ¹ Lawrence Pines, “Understanding the Rules for Defined-Benefit Pension Plans,” Investopedia, accessed March 9, 2020, https://www.investopedia.com/articles/credit-loans-mortgages/090816/understanding-rules-defined-benefit-pension-plans.asp
Share by: