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DB: Defined Benefit

The most distinctive feature of DB(Defined Benefits) plan is that the employee can calculate the retirement benefit amount when he/she will receive upon
retirement if he/she knows

  1. 1) years of service and
  2. 2) average salary when retired.

Retirement benefit doesn’t change by anything else because it is calculated by multiplying the years of service with the final salary at retirement to which the annual salary increase rate is applied.

The second feature is the employee does not need to care about choosing investment products or investment performance during employment. It is because the employee receives the fixed amount of retirement benefit while the company makes investment decisions.

A DB participant’s retirement benefit = ‘average monthly salary upon retirement’
X years of service

In case the participant retires before 55, the retirement benefit is transferred to IRP
automatically
and can be continuously managed until the participant wants.

In case the participant retires after 55, he/she can choose lump sum or annuity.