Difference between revisions of "Pension"
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| − | A ''' | + | A '''pension''' is a benefit paid to people retired after their [[employment]]. |
Pensions can be defined as either "defined benefit" or "defined contribution". | Pensions can be defined as either "defined benefit" or "defined contribution". | ||
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In a defined benefit plan, the amount paid to the retiree after employment is known (or is easily calculated); what is unknown is the amount required to provide the benefit as it depends on interest rates (often over a long period of time). Also they are not portable (in most cases); if an employee leaves the employer outside of retirement, the pension is greatly reduced if not completely eliminated altogether. While defined contribution pensions are still common in the public sector (the [[Federal Employees Retirement System]], and its predecessor the Civil Service Retirement System, are the best known), they are rapidly disappearing from corporate America. | In a defined benefit plan, the amount paid to the retiree after employment is known (or is easily calculated); what is unknown is the amount required to provide the benefit as it depends on interest rates (often over a long period of time). Also they are not portable (in most cases); if an employee leaves the employer outside of retirement, the pension is greatly reduced if not completely eliminated altogether. While defined contribution pensions are still common in the public sector (the [[Federal Employees Retirement System]], and its predecessor the Civil Service Retirement System, are the best known), they are rapidly disappearing from corporate America. | ||
| − | In a defined contribution plan, the amount contributed to the plan is known (or is easily calculated, and may include amounts matched by the employer); what is unknown is the amount the retiree will have upon retirement as it depends on performance of the underlying investment (and it is possible that the amount could be zero, if the investment is in company stock and the company later ceases to exist). They are also usually portable to an extent: usually individual contributions and associated earnings can be taken to another plan (but company matching amounts and associated earnings may only be portable if an employee is "vested" in them, usually requiring a certain amount of time employed). [[Individual retirement account]]s and 401(k) plans are popular types of these plans. | + | In a defined contribution plan, the amount contributed to the plan is known (or is easily calculated, and may include amounts matched by the employer); what is unknown is the amount the retiree will have upon retirement as it depends on performance of the underlying investment (and it is possible that the amount could be zero, if the investment is in company stock and the company later ceases to exist). They are also usually portable to an extent: usually individual contributions and associated earnings can be taken to another plan (but company matching amounts and associated earnings may only be portable if an employee is "vested" in them, usually requiring a certain amount of time employed). [[Individual retirement account]]s and 401(k) plans are popular types of these plans; in the Federal civil service the [[Thrift Savings Plan]] is the defined contribution portion of the overall retirement system. |
[[Social Security]] Plans can supplement the Pensions of individuals, in addition to other savings that a person may have to fund retirement living. | [[Social Security]] Plans can supplement the Pensions of individuals, in addition to other savings that a person may have to fund retirement living. | ||
Revision as of 17:32, March 16, 2019
A pension is a benefit paid to people retired after their employment.
Pensions can be defined as either "defined benefit" or "defined contribution".
In a defined benefit plan, the amount paid to the retiree after employment is known (or is easily calculated); what is unknown is the amount required to provide the benefit as it depends on interest rates (often over a long period of time). Also they are not portable (in most cases); if an employee leaves the employer outside of retirement, the pension is greatly reduced if not completely eliminated altogether. While defined contribution pensions are still common in the public sector (the Federal Employees Retirement System, and its predecessor the Civil Service Retirement System, are the best known), they are rapidly disappearing from corporate America.
In a defined contribution plan, the amount contributed to the plan is known (or is easily calculated, and may include amounts matched by the employer); what is unknown is the amount the retiree will have upon retirement as it depends on performance of the underlying investment (and it is possible that the amount could be zero, if the investment is in company stock and the company later ceases to exist). They are also usually portable to an extent: usually individual contributions and associated earnings can be taken to another plan (but company matching amounts and associated earnings may only be portable if an employee is "vested" in them, usually requiring a certain amount of time employed). Individual retirement accounts and 401(k) plans are popular types of these plans; in the Federal civil service the Thrift Savings Plan is the defined contribution portion of the overall retirement system.
Social Security Plans can supplement the Pensions of individuals, in addition to other savings that a person may have to fund retirement living.