Defined Benefit Plan
A defined benefit pension plan provides lifetime income to retired employees. Participants become eligible to receive pension benefits upon reaching retirement age, or 10 years of service or job termination, whichever comes first.
Generally, a defined benefit pension plan requires workers to meet age and service requirements before they can participate in the plan. Workers cannot be excluded from participating because they are too old, even if they are hired within a few years of the normal retirement age specified in the plan. Usually, plans allow workers to participate if they are at least 21 years old and have completed one year of service with the company.
The tax law provides that a participant's annual benefit may not exceed the lesser of $165,000 or 100 percent of the participant's average annual compensation for his or her high three years. The law further provides that the term "annual benefit" refers to benefits payable annually in the form of a straight-life annuity.
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