Glossary
Defined Benefit Plan
A defined benefit plan is a retirement plan — a traditional pension — that promises a specific benefit at retirement, usually a lifetime monthly payment calculated from salary and years of service.
The employer (or public system) bears the investment and longevity risk: whatever markets do, the formula benefit is owed. This is the opposite of a defined contribution plan, where the contribution is fixed and the outcome depends on markets.
Why it matters in practice
A defined benefit is effectively an annuity earned through work — guaranteed income that never runs out, which dramatically simplifies longevity risk. The hard decisions cluster at retirement: which survivor option to elect, whether a lump-sum offer is worth trading the lifetime income for, and how the pension coordinates with other savings. Public pensions like CalPERS and CalSTRS are the most common examples California workers encounter.
Related terms: Defined Contribution Plan · Pension · CalPERS · Cash Balance Plan · Lump Sum