Final answer:
A defined benefits plan is a type of pension plan that contains a formula for determining retirement benefits so that the actual benefits to be received are defined ahead of time.
Step-by-step explanation:
A type of pension plan that defines retirement benefits ahead of time through a predetermined formula is known as a Defined Benefit (DB) pension plan. In a DB plan, the retirement benefits are typically based on factors such as an employee's salary history and years of service. The formula calculates a specific, predetermined benefit that retirees will receive during their post-employment years.
The advantage of a Defined Benefit plan is that it provides employees with a predictable and assured income in retirement. Employers bear the investment risk and are responsible for ensuring there are sufficient funds to meet the promised benefits. This distinguishes it from a Defined Contribution (DC) plan, where the contributions are defined, but the actual retirement benefits depend on the plan's investment performance. Defined Benefit plans are common in traditional pension arrangements offered by many employers.
The type of pension plan that contains a formula for determining retirement benefits so that the actual benefits to be received are defined ahead of time is called a defined benefits plan. In these plans, retirees receive a fixed nominal dollar amount per year at retirement. This means that the benefits are known in advance and do not increase over time, regardless of inflation.