What is defined benefit retirement plan?

1. In a DB retirement plan, the pension amount or value of retirement benefit is known beforehand.

2. There is a formula, which takes into account the salary history and years of service, based on which the pension amount is calculated.

3. The investor is assured of the pension amount as defined, irrespective of the return that is generated by the pension fund.


4. The biggest downside of DB plans are the reducing interest rates and increasing cost of annuities are making DB plans unfeasible.

5. Central Civil Services Pension and the Public Sector Bank Pension are examples of defined benefit retirement plans.

(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)