Defined-Benefit Plan
Accounting glossary · Understand, connect, apply
A defined-benefit plan specifies pension or other benefits promised to employees, often through a formula based on service and pay. The employer bears significant funding and estimation risks.
Example
A pension formula promises a benefit based on years of service and final salary, so actuarial estimates are needed to measure obligations.
Remember the difference
The annual contribution is not necessarily the period’s pension expense or the reported obligation.
Examples are simplified for learning. Where a term depends on US law, IFRS, US GAAP or a historical rule, check the context explained above and the requirements relevant to your course.
Study references: OpenStax financial accounting and managerial accounting. For reporting requirements, consult the applicable IFRS Standards or FASB guidance. US tax terms should be checked against the relevant tax-year IRS instructions.
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