What Is a Pension?
A pension, or defined benefit plan, is an employer-sponsored retirement plan that promises a specific income in retirement, usually based on salary history and years of service. The employer manages the investments and bears the investment risk. This differs from defined contribution plans like 401(k)s, where the final amount depends on contributions and returns.
Typical Formula
A common structure is benefit = years of service × a percentage × final or average salary, for example 30 years × 1.5% × 60,000 = 27,000 a year.
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Last updated: September 27, 2026. This definition is for general educational purposes only. It is not financial, investment, tax, legal, or medical advice, and it does not recommend any product or course of action. For decisions about your own situation, consult a qualified professional.