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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  1. What are the sources of funding available for companies?

    Despite all the differences among companies, there are only a few sources of funds available to all firms. 1. They make ... Read Full Answer >>
  2. What is evergreen funding?

    Evergreen funding is a term used to describe the incremental addition of money into a business. Before a business is started ... Read Full 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 Full Answer >>
  4. When can catch-up contributions start?

    Most qualified retirement plans such as 401(k), 403(b) and SIMPLE 401(k) plans, as well as individual retirement accounts ... Read Full Answer >>
  5. Are 401(k) contributions tax deductible?

    All contributions to qualified retirement plans such as 401(k)s reduce taxable income, which lowers the total taxes owed. ... Read Full Answer >>
  6. Are 401(k) rollovers taxable?

    401(k) rollovers are generally not taxable as long as the money goes into another qualifying plan, an individual retirement ... Read Full Answer >>

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