What characterizes a defined benefit plan?

A defined benefit plan is characterized by benefits that are determined through a specific benefit formula set by the employer. This formula typically considers factors such as the employee's salary, years of service, and a predetermined accrual rate. The key feature of these plans is that the employer guarantees a certain payout upon retirement, irrespective of the performance of any investments or the company's profitability.

In contrast to the other options, the defined benefit plan does not rely primarily on employee contributions as a funding source; rather, it is usually funded by the employer. Additionally, benefits are not tied to the company's profits or market performance, which differentiates them from defined contribution plans where individual investment decisions and market fluctuations directly impact retirement benefits. The certainty and predictability of the benefits provided in defined benefit plans make them distinct within retirement plan structures.