For example, certain periods of absence for maternity or paternity reasons must be treated as though the individual was at work. While the credited service proposal would apply to both defined contribution and defined benefit retirement plans, the second proposal, to expand the options for survivor protection, is specifically geared toward defined benefit plans. Benefits are not guaranteed. Payments are usually made in a lump sum at retirement, although employees may have the option to receive payments over time. In contrast, a defined benefit plan specifies a formula for determining future benefit amounts, typically based on earnings and years of service.
Employers make sufficient contributions to the plan to pay for future benefits.
The Federal Government maintains an insurance system to guarantee benefits from these plans. Payments are generally in the form of a monthly benefit for life, with a variety of options designed to provide survivor protection. Under such an option, a retiring employee could choose to receive a full benefit or could choose to take a reduced benefit in return for the continuation of benefits for a survivor following the death of the retiree. 8 Chart 1 provides an example of the level of benefits that might be received under such an arrangement. The amount of the reduction varies by the age of the retiree and spouse.