Each Defined Benefit Plan has its own formula and therefore its own calculations. These formulas need to be arranged by an enrolled actuary to insure that they’ll work over time and will hold up to IRS scrutiny.
In general, however, the calculations are strongly based on factors such as your age, your salary, and the number of years you have spent working for the company. For every bit of salary you collect, or length of time you add to your tenure, you add incremental amounts to the set benefit waiting for you in retirement.
Some defined benefits are only set to pay out for a certain number of years as a salary continuation, but most often they are designed and guaranteed to pay out for as long as a participant lives. Some pensions may have survivorship benefits available to spouses, which may be anywhere from 25%-100% of the benefit amount due while the plan participant lives.
Defined Benefits planned are secured by insurance provided by the Pension Benefit Guaranty Corporation (PBGC), a government entity. Defined Benefits plans can also be arranged by multiple employers in the same industry in a kind of collective bargaining arrangement.
In 2016, about 20 million people are covered by single-employer pension arrangements and 10 million are covered by multi-employer plans.
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