Variable Benefit Plan

AAA

DEFINITION of 'Variable Benefit Plan'

A type of retirement plan in which the payout changes depending on how well the plan's investments perform. Variable benefit plans, also called defined contribution plans, allow the plan holder to manage his or her own account. By contrast, a defined benefit plan provides the plan holder with predetermined payments upon retirement that do not change and which are based on an eligibility formula rather than on investment returns.

BREAKING DOWN 'Variable Benefit Plan'

Variable benefit plans shift investment risk from the employer to the employee. It is possible that the employee will end up with less money from a variable benefit plan if he makes poor investment choices. However, he also has the power to make superior investment choices and end up with better benefits. Therefore, the ability of the employee to make smart investment decisions is critical in variable benefit plans.

RELATED TERMS
  1. Withdrawal Benefits

    The rights of an employee who has a qualified pension plan to ...
  2. Vested Benefit Obligation - VBO

    The actuarial present value of pension plan benefits belonging ...
  3. Fully Funded

    A pension plan that has sufficient assets needed to provide for ...
  4. Accumulated Benefit Obligation

    An approximate measure of a company's pension plan liability. ...
  5. Pension Shortfall

    A situation in which a company offering employees a defined benefit ...
  6. Defined-Benefit Plan

    An employer-sponsored retirement plan where employee benefits ...
Related Articles
  1. Retirement

    An Overview Of The Pension Benefit Guaranty Corporation (PBGC)

    Find out how this "retirement lifeguard" can save drowning plans, and why it's unlikely to be a long-term solution to the pension problem.
  2. Retirement

    Keeping Track Of Retirement Plan Assets

    Maintain records of your pension benefits or risk losing them.
  3. Retirement

    The Investing Risk Of Underfunded Pension Plans

    Determine the risk to a company's EPS and financial condition resulting from an underfunded pension plan.
  4. Retirement

    Chipping Away At The Pension Freeze Trend

    Learn five steps that'll put your retirement back into your own hands.
  5. Retirement

    Pension Law Could Reduce Your Payout

    Discover how this act negatively affects your lump-sum withdrawals.
  6. Retirement

    Lump Sum Versus Regular Pension Payments

    If you're about to retire, you may be facing this dilemma soon. Find out what your options are.
  7. Investing

    How To Evaluate Pension Risk By Analyzing Annual Costs

    Learn how to assess whether a company's pension plan is posing more risks than what the footnotes indicate.
  8. Term

    What is a Preemptive Right?

    A preemptive right allows select shareholders to buy newly issued shares in their corporation before the general public.
  9. Term

    What are Pension Funds?

    A pension fund is a company-sponsored fund that provides income for employees in retirement.
  10. Retirement

    Retirement Planning for Entrepreneurs and Small Businesses

    If your business has receiveables, here's a smart way to leverage them to build up your retirement fund fast.
RELATED FAQS
  1. Can my IRA be garnished for child support?

    Though some states protect IRA savings from garnishment of any kind, most states lift this exemption in cases where the account ... Read Full Answer >>
  2. Can I use my IRA savings to start my own savings?

    While there is no legal reason why you cannot withdraw funds from your IRA to start a traditional savings account, it is ... Read Full Answer >>
  3. Can creditors garnish my IRA?

    Depending on the state where you live, your IRA may be garnished by a number of creditors. Unlike 401(k) plans or other qualified ... Read Full Answer >>
  4. Can my IRA be used for college tuition?

    You can use your IRA to pay for college tuition even before you reach retirement age. In fact, your retirement savings can ... Read Full Answer >>
  5. Why are IRA, Roth IRAs and 401(k) contributions limited?

    Contributions to IRA, Roth IRA, 401(k) and other retirement savings plans are limited by the IRS to prevent the very wealthy ... Read Full Answer >>
  6. How do you calculate penalties on an IRA or Roth IRA early withdrawal?

    With a few exceptions, early withdrawals from traditional or Roth IRAs generally incur a tax penalty equal to 10% of the ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Bubble Theory

    A school of thought that believes that the prices of assets can temporarily rise far above their true values and that these ...
  2. Stock Market Crash

    A rapid and often unanticipated drop in stock prices. A stock market crash can be the result of major catastrophic events, ...
  3. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  4. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  5. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  6. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!