Unfunded Pension Plan

What is an 'Unfunded Pension Plan'

An unfunded pension plan is an employer managed retirement plan that uses the employer's current income to fund pension payments as they become necessary. This is in contrast to an advance funded pension plan where an employer sets aside funds systematically and in advance to cover any pension plan expenses such as payment to retirees and their beneficiaries.

BREAKING DOWN 'Unfunded Pension Plan'

A pension plan is a program offered by certain employers that provides a salary replacement when an employee is no longer working (for example, when the employee retires). When employers offer a pension plan, they can plan for the anticipated financial requirements of the pension plan and set aside a certain amount of money on a regular basis - and invest the money to ideally grow the fund. Conversely, certain employers elect to fund the pension plan out of current earnings. This is a pay-as-you-go pension plan, and the future of such plans can often be put in danger by unexpected events.

RELATED TERMS
  1. Advanced Funded Pension Plan

    A pension plan that is funded concurrently with the employee's ...
  2. Pensionable Service

    The period of service, expressed in a yearly figure, for which ...
  3. Fully Funded

    A pension plan that has sufficient assets needed to provide for ...
  4. Pension Fund

    A fund established by an employer to facilitate and organize ...
  5. Pension Adjustment Reversal - PAR

    A numerical calculation in certain Canadian pension plans that ...
  6. Plan Participant

    A plan participant either contributes into a pension plan or ...
Related Articles
  1. Retirement

    Pension Plans: Pain Or Pleasure?

    Employees have a love/hate relationship with this retirement option.
  2. 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.
  3. 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.
  4. Retirement

    How Pensions, Social Security Differ

    Both pensions and Social Security provide an income stream to retirees, but they differ widely on how they're structured and funded. Here's the lowdown.
  5. Retirement

    What are Pension Funds?

    A pension fund is a company-sponsored fund that provides income for employees in retirement.
  6. Financial Advisor

    How to Advise Clients with Frozen Pensions

    Financial advisors are on the front line in advising clients impacted by a frozen pension. Here's what they need to consider.
  7. Financial Advisor

    Pension Advances: What You Should Be Wary Of

    The terms some pension advance firms require can be costly. Here's how to be sure your clients aren't making bad decisions.
  8. Retirement

    Florida's Surprisingly Flexible State Retirement System

    Retired Florida employees can choose a 401(k)-style investment plan or a traditional pension.
  9. Retirement

    How Does a Pension Plan Work?

    A pension plan is a savings plan maintained by an employer on behalf of its employees for their retirement.
  10. Retirement

    Understanding Defined Benefit Pension Plans

    An employer-sponsored retirement plan where employee benefits are based on a formula using factors such as salary history and duration of employment.
RELATED FAQS
  1. The company I am receiving my pension plan from has just filed bankruptcy. Could ...

  2. What can you do with your pension if you leave the employer and can you borrow money ...

    I am planning to leave my job that I have worked at for 8 plus years and I just received a notice about a pension that I ... Read Answer >>
  3. Who bears the investment risk in 401(k) plans?

    Who actually bears the investment risk in a pension plan depends on the type of pension plan that is employed. In a broad ... Read Answer >>
  4. How do pay-as-you-go pension plans work?

    Learn what a pay-as-you-go pension plan is and how it is different from fully funded pension plans. Understand how public ... Read Answer >>
  5. 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 >>
  6. How does a pension income drawdown work?

    Understand what a pension income drawdown plan is, and learn the current rules governing pension income drawdown plans in ... Read Answer >>
Hot Definitions
  1. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  2. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  3. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  4. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  5. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  6. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
Trading Center