What is a defined benefit pension plan?

A defined benefit pension pays a benefit set by a formula, generally based on your pay and years of service, not by the balance in an account you manage. The employer funds the plan and bears the investment risk. A 401(k) works the other way: you, your employer or both contribute to your own account, and what you end up with depends on contributions and investment results.

How is a pension benefit calculated?

Plans use a few common designs, and a large employer's plan may use more than one for different groups or different years of service.

• Final average pay: a percentage of your average pay over your highest-paid years, multiplied by your years of service.
• Cash balance: a hypothetical account that grows with pay credits and interest credits, with a lump sum generally equal to the account balance.
• Flat dollar: a set dollar amount for each year of service, a design often found in union contracts.

The cash balance design is still a defined benefit plan, even though your benefit shows up as an account. The employer, not you, carries the investment risk on the interest credits it has promised.

When do you become vested?

Vesting is the point at which the employer-funded benefit becomes yours to keep if you leave. Federal law gives a traditional pension two choices: full vesting after no more than five years of service, or gradual vesting that reaches 100% after no more than seven years. A cash balance formula has to vest fully after no more than three years.

When can benefits start, and in what form?

Each plan sets a normal retirement age, commonly 65, and many allow an earlier start with a smaller monthly check to account for the extra years of payments. The size of the early retirement reduction varies widely from plan to plan, so it is worth getting a written estimate for more than one start date.

If you are married, the plan generally must pay your benefit as a qualified joint and survivor annuity, which continues 50% to 100% of your benefit to your surviving spouse. To choose another form, you need your spouse's written consent, witnessed by a notary or plan representative.

Some plans also offer a lump sum. It is calculated as the present value of your monthly benefit using IRS interest rates and mortality tables, and higher interest rates generally produce a smaller lump sum. A plan may pay a small benefit as a lump sum without your consent; SECURE 2.0 raised the ceiling for that cash-out to $7,000, though each plan chooses whether to adopt the higher limit.

What happens to a pension in a divorce?

A pension can be divided by a qualified domestic relations order (QDRO), a court order the plan administrator reviews and accepts. The order can use a "shared payment" approach, where the former spouse receives part of each check while the participant is paid, or a "separate interest" approach, where the former spouse receives a separate benefit paid over his or her own lifetime. Whether a former spouse can take a lump sum depends on the plan's terms.

Who stands behind the pension if the plan fails?

For a single-employer pension, the Pension Benefit Guaranty Corporation (PBGC) can take over an underfunded plan that ends and pay benefits up to legal limits. For a plan ending in 2026, the most PBGC can pay a retiree starting at age 65 is $7,789.77 a month as a straight-life annuity, and the limit is lower at younger ages.

Employers sometimes move a group of retirees' benefits to an insurance company by buying a group annuity. After that purchase, the insurer pays the benefit and PBGC coverage for it ends. State insurance guaranty associations back the annuity if the insurer fails, up to limits that vary by state but are at least $250,000 in present value of annuity benefits everywhere.

How are pension payments taxed?

Monthly pension checks are generally taxed as ordinary income as you receive them. A lump sum can be rolled directly into an IRA or another employer plan to defer tax; if the plan pays it to you, 20% federal income tax is withheld. The taxable part of a payout taken before age 59 1/2 may face an extra 10% tax unless an exception applies, such as leaving your job in or after the year you turn 55. Money rolled into an IRA becomes subject to required minimum distributions starting at age 73, or 75 if you were born in 1960 or later.

What should you request from the plan?

• Your current benefit statement, showing your accrued monthly benefit and vesting status.
• The summary plan description for your employee group, including the formula that applies to you.
• Written estimates for two or three possible start dates, for each payment form you are considering.
• The interest rate period the plan uses for lump sums, if it offers one.

What kind of pension does AT&T provide?

Those requests go further once you know which AT&T formula your service falls under and whether your benefit went to an insurer. AT&T pays most nonmanagement Communications employees a flat dollar formula by years of service, or a cash balance formula with pension band and interest credits; most can take a lump sum or annuity. Management programs, closed to new entrants hired on or after January 1, 2015, use cash balance or career-income formulas. The plan reported 296,285 participants and beneficiaries for 2024. Ask the plan which formula and payment form apply to you.

In 2023, AT&T's plan fiduciary bought group annuity contracts from Athene Holding Ltd. subsidiaries, moving about 96,000 participants and beneficiaries off the plan as of October 30, 2026, with no change to anyone's benefit. The purchase was funded from the plan's trust assets. The 2025 Form 10-K puts the transferred obligation at $8,067 million; the 2023 8-K expected a settlement gain near $350 million. If you or a family member draws an AT&T pension, find out if it was part of the group moved to Athene in 2023.

AT&T's pension plans ended 2025 about 93.6% funded, up from about 90.2% a year earlier. Public reporting puts the 401(k) match for most management employees at 80% of the first 6% of pay; AT&T filings give no percentage, and union contracts vary. Some bargained employees are moving from an older union savings plan onto the AT&T Retirement Savings Plan during 2026. Find out if your contributions are enough to receive AT&T's full match.