What type of retirement benefit plan guarantees an employee a certain amount of payment upon retirement?

A defined benefit retirement plan guarantees a specific amount of payment to an employee upon retirement, often based on a formula that considers factors such as years of service and salary history. This type of plan provides a predictable, stable income for retirees, which can be crucial in financial planning for retirement. It shifts the investment risk from the employee to the employer, as the employer is responsible for ensuring that there are sufficient funds to meet the promised benefits regardless of the investment performance.

Defined contribution plans, in contrast, do not guarantee a specific payout upon retirement. Instead, the employer and/or employee contributes a certain amount to an individual account, and the retirement benefit depends on the performance of invested funds. Non-contributory plans imply that the employer bears the full cost of the retirement plan, but do not inherently guarantee specific benefits like a defined benefit plan does. An Employee Stock Ownership Plan (ESOP) focuses on providing employees with ownership interest in the company through stock, rather than guaranteeing retirement income.

Overall, the defining characteristic of a defined benefit plan is the certainty it provides regarding retirement income, making it essential for financial security among retirees.