For example, suppose you earned $50,000 per year, or about $4,167 per month on average. You worked for 30 years, and your pension has a 2% salary multiplier.
Your pension plan would pay you 60% of your average monthly income (30 years of service x 0.2 = 0.6).
You'd receive a monthly benefit of $2,500 ($4,167 x 0.6).
Defined benefit plan rules
Defined benefit plans don't usually require employees to contribute any funds to the plan. Instead, they are funded by the employer. However, some defined benefit plans may have voluntary or required employee contributions. Since employers manage and make contributions, they get to decide who qualifies for the plan and when and how you receive your payout -- but they must operate within U.S. Internal Revenue Service (IRS) and ERISA, or Employee Retirement Income Security Act of 1974, guidelines.
Pension plans can have vesting schedules, just like 401(k)s or other employer-sponsored retirement plans that offer matching contributions. If you leave your job before you're fully vested in the plan, you'll forfeit some or all of your pension.
Each company sets its own vesting schedule. However, if you don't think you're going to be with your employer for more than a few years, you may get more benefit from a 401(k) than you would from your company's pension plan. That's because you could contribute to your 401(k), invest the funds, and take your account balance with you after leaving (minus any employer matching contributions that hadn't yet vested).
