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Accounting Dictionary

Defined Benefit Pension Plan

In a defined benefit pension plan a company guarantees you a certain percentage of your ending salary for every year you have worked.

Let’s say your company promised you 2% of your ending salary for every year of employment and you have worked for them for 30 years. If your ending salary was $80,000, your pension would be .02 (two percent) times 30(years of service) times $80,000 (ending salary) or $48,000 per year. These plans are extremely expensive for the company or governmental unit and many entities are working to disband them.

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