What is a defined benefit plan?

A defined benefit, unlike a defined contribution plan, is one where the contributions an employee and employer make to retirement will be paid out in a guaranteed payout at retirement no matter how long the employee lives or how the investment performs. Many state and local governments offer their employees defined benefit plans that employees can contribute to in order to increase their future payout at retirement in the form of unchanging monthly payments. These types of plans have presented problems for some governments when the invested amounts set aside for retirement were less than the amount they needed to pay and the pension payments needed to come out of operating budgets or higher taxes.