Defined Benefit Plans
Chapters in this video
- 0:00 The burden of the promise: who loses when the market crashes
- 1:36 Employer bears the risk and employees do not pick investments
- 3:03 The $285,000 cap and 100% vesting of your own contributions
- 4:01 "Actuarially determined" means the contribution floats
- 5:00 PBGC safety net and what it refuses to cover
- 6:21 Defined benefit vs. defined contribution side by side
- 7:04 Rapid-fire exam recap
What this video covers
- Why the employer (not the employee) bears all investment risk in a defined benefit plan, and how the employee's benefit stays fixed regardless of market performance
- What "actuarially determined" actually means: there is no fixed employer contribution, the amount floats year to year to fund the promised benefit
- The 2026 maximum annual benefit cap of $285,000 or 100% of average compensation for the highest 3 consecutive years, whichever is less
- Why employees do not direct investments in a defined benefit plan, since plan trustees manage the portfolio
- The 100% vesting rule for an employee's own contributions, and how that differs from employer-contribution vesting schedules
- What the Pension Benefit Guaranty Corporation (PBGC) covers: private-sector single-employer and multiemployer defined benefit plans, funded by sponsor premiums
- Why the PBGC does NOT cover 401(k), 403(b), government, or church plans, and how to spot that trap on the exam
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