Pay As You Go Pension Plan

What is a 'Pay As You Go Pension Plan'

A pay as you go pension plan is a retirement scheme where the plan beneficiaries decide how much they want to contribute either by having the specified amount regularly deducted from their paycheck or by contributing the desired amount in a lump sum. A pay as you go pension plan is similar to a 401k. The employee can choose among the various investment options and decide on whether they want a higher return by investing in a more risky fund or a safer fund which provides steady returns.

BREAKING DOWN 'Pay As You Go Pension Plan'

When retirement age comes along, the beneficiary can choose to either receive the benefits in a lump sum or as a lifetime annuity where the benefits are spread in monthly payments throughout the beneficiary's lifetime. This is different from a fully funded pension where the company fully funds, manages and distributes the benefits at retirement.

RELATED TERMS
  1. Plan Participant

    A plan participant either contributes into a pension plan or ...
  2. Fully Funded

    A pension plan that has sufficient assets needed to provide for ...
  3. Pension Adjustment Reversal - PAR

    A numerical calculation in certain Canadian pension plans that ...
  4. Benefit Allocation Method

    The benefit allocation method is a means of funding a pension ...
  5. Money-Purchase Pension Plan

    A pension plan to which employers and employees make contributions ...
  6. Pensionable Service

    The period of service, expressed in a yearly figure, for which ...
Related Articles
  1. Retirement

    How You Actually Get Your Pension After Retirement

    No matter what type of pension plan you have at work, decisions have to be made when you retire. Here are your options.
  2. Your Clients

    How to Help Clients Navigate Pension Payments

    Financial advisors play a key role in helping clients make critical pension decisions. Here are some tips to help clients make the right choices.
  3. Retirement

    Chipping Away At The Pension Freeze Trend

    Learn five steps that'll put your retirement back into your own hands.
  4. Retirement

    America's Frozen Pension Dilemma

    Unfortunately, there are several factors that have eroded the presence of pension plans in America, and workers need to be prepared to replace that expected income for their retirement years. ...
  5. Retirement

    7 Signs Your Pension Fund Is In Trouble

    Even if you're lucky enough to have a pension plan, you can't assume it'll pay out.
  6. Term

    What are Pension Funds?

    A pension fund is a company-sponsored fund that provides income for employees in retirement.
  7. Retirement

    Pension Law Could Reduce Your Payout

    Discover how this act negatively affects your lump-sum withdrawals.
  8. Retirement

    How Safe Is Your Pension?

    A 2014 law permits some private pension plans to reduce benefits. How to figure out if your retirement income is endangered.
  9. Savings

    529 Plans: Contributions

    By Denise ApplebyRegular contributions to 529 plans must be made in cash (which includes checks). In-kind contributions, such as stocks, bonds, mutual funds or other non-cash items cannot be ...
  10. Financial Advisors

    Pension Annuity vs. Lump Sum: Which is Best?

    Which pension distribution option best serves your client, a pension annuity or a lump-sum payout?
RELATED FAQS
  1. What are the differences between a Pay As You Go plan and a 401(k)?

    Compare a 401(k) plan with a pay-as-you-go pension plan; both offer investment flexibility and control by the participant ... Read Answer >>
  2. How do Pay As You Go pension plans work?

    Learn how pay-as-you-go pension plans are different than fully funded pension plans and why some government plans are running ... Read Answer >>
  3. What's the difference between a 401(k) and a pension plan?

    Discern the differences between 401(k) plans, in which employees assume the market risk, and pension plans, in which the ... Read Answer >>
  4. Can I take my 401(k) in a lump sum?

    Understand your options as it relates to taking a lump sum distribution from a 401(k) plan, and learn the benefits and disadvantages ... Read Answer >>
  5. How are Pay As You Go pension plan benefits taxed?

    Discover how the IRS treats pay-as-you-go pension plan benefits that are received as income in retirement, both for Social ... Read Answer >>
  6. What should I do with my pension?

    I plan to retire at the end of the month.I have a pension and a 401k. I plan on taking the lump sum payout for my pension ... Read Answer >>
Hot Definitions
  1. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  2. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  3. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  4. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  5. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center