Pension Plan


DEFINITION of 'Pension Plan'

A type of retirement plan, usually tax exempt, wherein an employer makes contributions toward a pool of funds set aside for an employee's future benefit. The pool of funds is then invested on the employee's behalf, allowing the employee to receive benefits upon retirement.


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BREAKING DOWN 'Pension Plan'

In many ways, a pension plan is a method in which an employee transfers part of his or her current income stream toward retirement income. There are two main types of pension plans: defined-benefit plans and defined-contribution plans.

In a defined-benefit plan, the employer guarantees that the employee will receive a definite amount of benefit upon retirement, regardless of the performance of the underlying investment pool.

In a defined-contribution plan the employer makes predefined contributions for the employee, but the final amount of benefit received by the employee depends on the investment's performance.

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  1. How are Social Security benefits calculated for divorced spouse?

    The maximum Social Security retirement benefit payable to a divorced spouse is 50% of the amount that would be paid to the ... Read Full Answer >>
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    The first and primary criteria necessary to obtain a pensionado visa in Costa Rica is that you must have a pension or pension-like ... Read Full Answer >>
  3. What are qualified retirement plan types?

    A qualified retirement plan is simply a plan that meets the requirements set out in Section 401(a) of the U.S. tax code. ... Read Full Answer >>
  4. Who bears the investment risk in 401(k) plans?

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