Defined Benefit

One type of retirement plan that governments offer is a defined benefit (DB) plan. A DB plan provides retirees with a guaranteed benefit at retirement. Governments use a formula, typically based on age, length of service, and salary to determine the level of benefits. Benefits paid to retired employees do not fluctuate based on plan investment performance. 

Characteristics of DB plans include:

  • Plan liabilities change based on actuarial assumptions, such as future salary increases, investment earnings, employee turnover, and actual plan experience.
  • Investment risk is assumed by the employer.
  • Annual contributions can vary annually based on actuarial assumptions.
  • Benefits may not be withdrawn while actively employed.

 

GFOA Best Practices and Advisories

Defined benefit plans are the predominant plan type in the public sector. GFOA identified the following best practices and advisories related to defined benefit plans:

Plan Design

Funding Practices

Investment

 

Resources