What is a characteristic of a defined benefit plan?

A characteristic of a defined benefit plan is that benefits are predetermined based on a formula. This means that the retirement benefits an employee will receive upon retirement are calculated using specific criteria set forth in the plan, which often includes factors like years of service, salary history, and age at retirement.

This structure provides employees with a clear understanding of what they can expect to receive at retirement, thereby offering a sense of security and predictability regarding their retirement income. The formula typically guarantees a certain benefit, which is not dependent on the performance of investments or the amount contributed by the employee or employer, distinguishing it from defined contribution plans where benefits fluctuate based on contributions and investment performance.