A defined benefit pension plan pays a benefit set by the plan's own formula, generally based on pay and years of service, instead of basing it on the balance in an individual account; the employer carries the investment risk and contributes to a shared pension fund meant to cover what the plan has promised.

What is a cash balance pension plan, and how is it different from a traditional pension?

A cash balance plan is still a defined benefit plan, but it states the benefit as a hypothetical account balance instead of a monthly formula. Each year the account gets a pay credit, often a percentage of pay, and an interest credit that is fixed or tied to an index.

Increases or decreases in the plan's actual investments do not change the promised balance, so the employer still carries that risk even though the benefit looks and reads like an account.

When does a pension become vested?

A traditional defined benefit plan meets minimum vesting rules with either five-year cliff vesting, where the benefit becomes fully nonforfeitable after five years of service, or a three-to-seven year graded schedule that reaches 20% at three years and adds 20 points a year until it reaches 100% at seven years.

A cash balance plan, by contrast, must vest an employee at 100% after no more than three years of service.

What happens to a pension plan that is frozen?

A frozen plan stops some or all future benefit accruals while staying in place. Under a hard freeze no participant adds any further accrual at all; under a soft freeze benefits can still rise with pay but not with additional years of service; and under a partial freeze only some participants, say by job classification or location, stop accruing while others keep building benefits.

Freezing a plan is a plan amendment, and federal law bars a plan amendment from cutting the benefit a participant has already earned up to that point.

For a retiree already receiving a monthly check, a freeze changes nothing about the amount owed or paid.

What survivor benefit applies if a participant dies before retiring?

A qualified pre-retirement survivor annuity pays a life annuity to the surviving spouse of a vested participant who dies before payments start, as long as the participant was married to that spouse, generally for at least a year if the plan requires it, or to a former spouse named in a qualified domestic relations order.

A married, vested participant's spouse must receive this survivor annuity unless the participant properly waived it with the spouse's written, witnessed consent. The requirement itself applies only to a married participant, so an unmarried participant has nothing to waive.

What form does the benefit take when a participant actually retires?

A defined benefit plan generally must pay a married participant's benefit as a qualified joint and survivor annuity, with the surviving spouse's share set between 50% and 100% of the amount paid during the participant's life, unless the participant and spouse both consent in writing to a different form, such as a lump sum or a single-life annuity.

That written consent has to be witnessed by a notary public or a plan representative, and made within the 180 day period that ends on the date payments start.

Can a plan hand off its pension obligations to an insurance company?

Some plans settle part or all of their obligations outside of a termination by buying a group annuity contract from an insurer, a step known as a pension risk transfer. In a buyout, the insurer takes over the payments directly and those participants leave the plan; in a buy-in, the plan keeps paying participants itself while the insurer backs the plan's own assets.

How is a pension benefit divided in a divorce?

A qualified domestic relations order (QDRO) is a domestic relations order that a plan's administrator must determine is qualified under federal rules before any part of a participant's benefit can be assigned to a spouse, former spouse, child, or other dependent.

A QDRO can split each payment as it is made or give the other party a separate right to their own share, though it is limited to forms of benefit, such as a lump sum, that are already available under the plan's own terms.

What happens to accrued benefits if a pension plan ends?

Federal law requires that, on a plan's termination, every employee affected by that termination becomes fully vested in whatever benefit they had already earned up to that date, to the extent it is funded.

If a plan has enough assets, it settles its benefits by buying an annuity contract from an insurance company, or, if the plan allows it, by paying lump sums to the participants and beneficiaries covered by the termination.

If assets fall short, the Pension Benefit Guaranty Corporation can step in as trustee and pay benefits up to a federal legal limit.

For a plan that fails in 2026, the most PBGC can pay a retiree who starts at age 65 is $7,789.77 a month as a straight life annuity, or $7,010.79 under a joint and 50% survivor annuity.

The formula, vesting schedule, and benefit options that actually apply depend on AT&T's own plan documents, which can vary by job classification, hire date, and years of service.

What pension formulas does AT&T use today?

Knowing which AT&T pension formula covers your job history helps you see what your account or benefit actually promises. AT&T's nonmanagement employees generally earn a benefit under a flat-dollar-per-year-of-service formula or a cash balance design with pension and interest credits, and most can pick an annuity or a lump sum. Its Bargained Cash Balance Program #2, for employees hired on or after August 9, 2009, credits a fixed 4.5% interest and pays a lump sum equal to the account balance. A legacy design called the East Program instead credits the greater of a 4% floor or the prior November's 30-year Treasury rate, 4.66% for 2024 and 4.54% for 2025. Management pension programs are closed to new entrants and cover only those generally hired before January 1, 2015, under a cash balance or traditional career-income formula.

Has AT&T moved any pension payments to an insurance company?

In 2023 AT&T's independent fiduciary bought group annuity contracts from Athene covering about 96,000 participants with smaller benefits, generally $2,200 or less a month, closing on May 3, 2023 and moving about $8,067 million of obligations to Athene starting with the August 2023 payment. Once a benefit moves this way it leaves ERISA and Pension Benefit Guaranty Corporation coverage behind; the backstop becomes Athene itself and the state insurance guaranty association where a retiree lives. Retirees sued over the choice of Athene in March 2024, and on September 28, 2026 a court dismissed the claims against AT&T itself but let a related fiduciary-breach claim proceed against the outside firm that selected the insurer.