Allocated Funding Instrument

DEFINITION of 'Allocated Funding Instrument'

A specific type of insurance or annuity contract that pension plans use to purchase retirement benefits incrementally. The allocated funding instrument is funded with employer contributions that are paid into the plan. The benefits that are purchased by the funding instrument are guaranteed to employees at retirement.

BREAKING DOWN 'Allocated Funding Instrument'

Pension plans that do not use allocated funding instruments use unallocated instruments instead. In these plans, there are no employer contributions available to purchase benefits before retirement. This means that no benefits are paid for at the time that the premium payments are actually made.

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RELATED FAQS
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    Despite all the differences among companies, there are only a few sources of funds available to all firms. 1. They make profit ... Read Answer >>
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    Evergreen funding is a term used to describe the incremental addition of money into a business. Before a business is started ... Read Answer >>
  3. What's the difference between pre-money and post-money?

    The short answer to the question is that they differ in timing of valuation. Both pre-money and post-money are valuation ... Read Answer >>
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    Now that you are no longer working with the (former) employer that established your 403(b) account, you may roll your 403 ... Read Answer >>
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