A Defined Benefit plan can pay out a participant's benefit in an annuity over the course of the participant's lifetime or a combination of the participant's lifetime, their spouse's lifetime, and/or a certain number of years.
Different forms have different relative values. Clearly, an annuity that is payable only for a participant's lifetime ( Life Only) is less valuable than an annuity payable for as long as either the participant or their spouse is alive (100 Joint And Survivor). So a plan has to specify one particular form, called the Normal Form, to serve as the baseline from which all other benefits are calculated.
For example, take a plan that defines the Normal Form as Life Only, covering only the participant's lifetime. Suppose that married participant Joe Greene has earned a benefit of $100 per month starting at retirement age. He and his wife, Joy Greene, may choose a different form of payment (depending on which ones the plan allows) such as the following:
Life Only: A monthly income of $100.00 payable to Joe for his lifetime only.
50 Percent Joint And Survivor: A monthly income of $94.63 payable to Joe for his lifetime plus, upon his death if Joy survives him, a monthly income of 50% of such amount ($47.32) to continue for her lifetime.
Ten Years Certain And Life: A monthly income of $99.27 payable to Joe for his lifetime, and if his death occurs within the first ten-years after benefits commence, the same monthly income will be paid to his beneficiary (Joy or other designee) for the remainder of the ten-year period.
Lump Sum: A single payment of $16,198 that represents the full value of the benefit.
This example illustrates that the monthly payment amount must be adjusted on an Actuarial Equivalent basis in order for the value of total expected benefit to remain unchanged. The Lump Sum option represents the Actuarial Equivalent value of the original $100 per month benefit in a single dollar-figure.
There are other variations on the forms of annities that plans can offer, such as:
Certain Period Only: A monthly income is paid for a certain specified number of months or years, then ends.
Annuity With Cola: One of the standard annuity forms is used, but each year the benefit increases by a designated percent in order to counteract inflation.
Cash Refund: Tracks contributions vs. distributions, and if the participant dies early, pays a "refund" of the excess of contributions over distributions already paid.
Level Income: For a participant who retires prior to age 62 (the earliest age at which Social Security benefits can commence), a larger benefit is paid from retirement up to age 62, then a reduced benefit is paid from age 62 on. The goal of this option is to provide a constant/level total retirement income when the monthly plan benefit and Social Security payments are added together.