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Defined Benefit Pension Plan
Projected retirement benefits are determined in advance for each participant. This determination is made from a formula stated in the defined benefit pension plan. This formula may recognize factors such as compensation and past and future service.
Because participants are guaranteed a pre-determined benefit under the terms of the plan, it is important that defined benefit pension plan assets are sufficient to meet emerging plan liabilities. An actuarial review is performed each year to monitor the growth of plan assets in relation to the benefits being earned by participants. Among other things, this review will determine the amount of contributions required for the plan year.
Defined benefit contributions are deposited to an "unallocated" trust fund and are invested in the aggregate by the plan's Trustee(s). In other words, plan assets are not "allocated" to any participant. As each participant retires, assets sufficient to provide such participant's benefits are released from the fund.