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. Can I borrow from my annuity to put a down payment on a house?

    You can borrow from your annuity to put a down payment on a house, but be prepared to pay an assortment of fees and penalties. ... Read Full Answer >>
  5. What are the main kinds of annuities?

    There are two broad categories of annuity: fixed and variable. These categories refer to the manner in which the investment ... Read Full Answer >>
  6. What are the risks of rolling my 401(k) into an annuity?

    Though the appeal of having guaranteed income after retirement is undeniable, there are actually a number of risks to consider ... Read Full Answer >>

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