Variable Benefit Plan

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. Target-Benefit Plan

    A benefit plan that is similar to a defined benefit plan since ...
  2. Qualified Retirement Plan

    A plan that meets requirements of the Internal Revenue Code and ...
  3. Plan Participant

    A plan participant either contributes into a pension plan or ...
  4. 529 Plan

    529 is a category of plans that provide tax advantages when saving ...
  5. Flat Benefit Formula

    A method of calculating an employer's contribution to an employee's ...
  6. Active Participant Status

    Active-participant status is a reference to an individual's participation ...
Related Articles
  1. Retirement

    How Does a Pension Plan Work?

    A pension plan is a savings plan maintained by an employer on behalf of its employees for their retirement.
  2. Retirement

    5 Lesser-Known Retirement And Benefit Plans

    These plans aren't widely used, but they fill a specific niche for employees in certain situations.
  3. Retirement

    Understanding Defined Benefit Pension Plans

    An employer-sponsored retirement plan where employee benefits are based on a formula using factors such as salary history and duration of employment.
  4. Retirement

    What's a Defined Contribution Plan?

    A defined contribution plan is a company retirement plan that specifies the amount of money contributed to it.
  5. Retirement

    The 401(k) and Qualified Plans Tutorial

    Learn about eligibility requirements, contributions and distribution rules for these retirement plans.
  6. Retirement

    Retirement Planning for the Self-Employed

    How to select a qualified retirement plan if you are self-employed and have no employees.
  7. Financial Advisor

    The 4-1-1 on 403(b) Plans

    These plans resemble 401(k) plans in many respects, but are specially designed for nonprofit entities.
  8. Retirement

    Florida's Surprisingly Flexible State Retirement System

    Retired Florida employees can choose a 401(k)-style investment plan or a traditional pension.
  9. Trading

    How And When To Switch Your 529 Plan

    Just as with any investment, you should review your plan to make sure it's meeting your needs.
  10. Retirement

    Why You Shouldn't Bet on Defined Benefit Plans

    Defined benefit plans were once a easy, safe way for workers to save for retirement. Too bad their massive obligations have made them expendable.
RELATED FAQS
  1. How does a defined benefit pension plan differ from a defined contribution plan?

    Learn the differences between defined benefit plans and defined contribution plans when reviewing employer-sponsored qualified ... Read Answer >>
  2. Is a 401(k) a qualified retirement plan?

    Examine the different types of qualified retirement plans, and discover if a 401(k) meets the definition of a qualified retirement ... Read Answer >>
  3. What are qualified retirement plan types?

    Understand the different types of qualified retirement plans and what they mean in terms of employee and employer contribution ... Read Answer >>
  4. What is the difference between a 401(k) plan and a 457 plan?

    Discover how 401(k) plans are privately offered employee retirement plans, while 457 plans are typically available to public ... Read Answer >>
  5. What is the best retirement plan option for a physician with her own practice, employees ...

    It is very unlikely that you will find a qualified plan or an IRA-based plan that will allow the employer to exclude other ... Read Answer >>
  6. Who bears the investment risk in 401(k) plans?

    Who actually bears the investment risk in a pension plan depends on the type of pension plan that is employed. In a broad ... Read Answer >>
Hot Definitions
  1. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  2. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  3. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  4. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  5. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
  6. Weighted Average Life - WAL

    The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Once calculated, ...
Trading Center