3715 / What is a defined benefit plan?

The IRC permits two types of qualified plans: defined benefit plans and defined contribution plans ( Q 3725). All defined benefit pension plans are structured as pension plans ( Q 3733), while defined contribution plans may be structured as pension or profit sharing plans. A defined benefit plan is a qualified retirement plan that expresses the participant’s benefit as a certain amount, either as an exact dollar amount or a formula that determines the amount that will be paid at retirement. The benefit is defined by the formula, but the contribution is determined by an actuary. The IRC states that the term “defined benefit plan” means any plan that is not a defined contribution plan.¹

Variations on the traditional defined benefit plan include Section 412(i)² insurance contract plans ( Q 3812) and cash balance plans ( Q 3720). See Q 3728 for the application of the Section 415 requirements to defined benefit plans, and Q 3716 for special qualification requirements. The IRS has even approved a rather unique adjustable pension plan (APP) or variable defined benefit plan (VDB) that seems to be gaining popularity in union situations.³