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defined-benefit plan is an employer-sponsored retirement plan where employee benefits are computed using a formula that considers several factors, such as length of employment and salary history. The company administers portfolio management and investment risk for the plan. There are also restrictions on when and by what method an employee can withdraw funds without penalties.

Defined-benefit plans, aka pension plans or qualified-benefit plans, are termed "defined" because employees and employers know the formula for calculating retirement benefits ahead of time. This fund is different from other pension funds, where the payout amounts depend on investment returns, and if poor returns result in a funding shortfall, employers must tap into the companys earnings to make up the difference. Since the employer is responsible for making investment decisions and managing the plan's investments, the employer assumes all the investment risk.

The accumulated benefit obligation is the present value of the estimated retirement benefits earned by plan participants using their current salaries. In practice, these calculations are complex and an actuarial will perform this task using the pension plan's benefit formula. The only difference between the company's projected benefit obligation (PBO) and its accumulated benefit obligation (ABO) is the value used for the employee's compensation. While the calculation of the ABO uses the employee's current compensation, the PBO uses the employee's projected compensation at retirement.