Corporate Pension Plan


DEFINITION of 'Corporate Pension Plan'

A formal arrangement between a company and its employees - or the employees' union - that provides funding for the employees' retirement. This pool of funds can be financed in several ways and will eventually be used to make periodic payments to retired employees. In most cases, both employer and employees make regular contributions to the plan. In the past, employers were wholly responsible for contributing to the plan based on an employee's work, length of employment and position held.

BREAKING DOWN 'Corporate Pension Plan'

Two of the most common corporate pension plans are the defined-benefit and defined-contribution plans. With defined-benefit plans, employee retirement benefits are calculated according to a formula, usually based on duration of employment and salary history, and it is the employer's responsibility to come up with the necessary cash to fund the plan. Defined-contribution plans, on the other hand, offer no guarantee on the amount of benefit that an employee will receive at retirement; the payout from this plan rests solely on the success of the investment plan.

Many corporate pension plans promise to fund the living requirements of retired employees until they die. Not surprisingly, financing them can put a strain on corporations. As a result, many companies are changing their pension plans from defined benefit to defined contribution.

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  1. 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 >>
  2. 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 >>
  3. Are catch-up contributions included in the 415 limit?

    Unlike regular employee deferrals, catch-up contributions are not included in the 415 limit. While there is an annual limit ... Read Full Answer >>
  4. Can catch-up contributions be matched?

    Depending on the terms of your plan, catch-up contributions you make to 401(k)s or other qualified retirement savings plans ... Read Full Answer >>
  5. Are catch-up contributions included in actual deferral percentage (ADP) testing?

    Though the Internal Revenue Service (IRS) carefully scrutinizes the contributions of highly compensated employees (HCEs) ... Read Full Answer >>
  6. Can LLCs have employees?

    A limited liability corporation (LLC) can have an unlimited number of employees. An employee is defined as any individual ... Read Full Answer >>

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