Legal Definitions - fixed-benefit plan

A fixed-benefit plan is a type of pension plan where the employer promises specific retirement benefits to each employee. This means that the employee knows exactly how much they will receive in retirement, regardless of how the plan's investments perform.

For example, if an employee has a fixed-benefit plan that promises them $1,000 per month in retirement, they will receive that amount no matter what. This is different from a defined-contribution plan, where the employee's retirement benefits depend on how much they and their employer contribute and how well the investments perform.

Other types of pension plans include:

• Contributory pension plan: A pension plan where both the employer and the employee contribute.
• Noncontributory pension plan: A pension plan where only the employer contributes.
• Nonqualified pension plan: A deferred-compensation plan where an executive increases retirement benefits by making additional contributions to the company's basic plan.
• Qualified pension plan: A pension plan that complies with federal law (ERISA) and allows the employee to receive tax benefits for contributions and tax-deferred investment growth.
• Top-hat pension plan: An unfunded pension plan that is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of managers or highly paid employees.

These different types of pension plans illustrate the various ways that employers can provide retirement benefits to their employees. Fixed-benefit plans are attractive to employees who want a guaranteed retirement income, but they can be more expensive for employers to maintain than other types of plans.