What is a key characteristic of Defined Benefit Plans?

A key characteristic of Defined Benefit Plans is that employees receive a guaranteed monthly benefit at retirement. This aspect distinguishes these plans from others, such as Defined Contribution Plans, where the retirement benefit depends heavily on the contributions made by employees and the performance of the investments chosen. In a Defined Benefit Plan, the employer typically takes on the investment risk and is responsible for ensuring that sufficient funds are available to pay the promised benefits to retirees.

The monthly benefit is often calculated based on factors such as salary history and years of service, providing retirees with a sense of financial security as they can predict their retirement income more accurately. This guaranteed benefit structure is beneficial for employees, as they do not need to worry about the fluctuations in the market affecting their retirement income.

In contrast, features such as employee-driven contributions or benefits solely based on employer contributions do not capture the essence of Defined Benefit Plans. Additionally, these plans are not primarily investment accounts, as they focus on delivering a predetermined benefit rather than being linked directly to individual investment performance.