Who typically funds a defined benefit plan?

A defined benefit plan is primarily funded through various sources, with employer contributions playing a significant role. However, it is also supplemented by employee contributions and investment earnings. This combination of funding mechanisms is crucial for maintaining the financial health of the plan and ensuring that it can meet its future obligations to retired employees.

The employer typically makes the largest contribution to the plan, as they are responsible for guaranteeing the promised benefits. Employee contributions might also be required, though they often rely on the specific rules of the plan. Additionally, investment earnings are vital; the assets accumulated from both employer and employee contributions are invested to grow over time, ultimately helping to cover the defined benefits owed to participants when they retire.

This understanding highlights that a defined benefit plan is a multi-faceted approach to retirement funding, relying on a diverse array of financial inputs to ensure its sustainability and ability to pay out promised retirement benefits.