WHAT IS 'Integrated Pension Plan'

An integrated pension plan is an employer-based pension plan where the employer counts Social Security benefits as part of the total benefit that the plan participant receives. Said another way, employers that use an integrated plan reduce the pension benefits that their employees receive by a percentage of the amount that they receive in their social security check. If the pension plan were not integrated, employees would receive a greater sum of money from their employer.

BREAKING DOWN 'Integrated Pension Plan'

Integrated pension plan participants collect from their employer as well as Social Security. Some integrated plans have a specified total benefit in mind when determining payout; these plans look for Social Security and pension funds to combine toward meeting that goal. Employees do have some protection, though. According to a 1988 law, an employer that enrolls employees in an integrated pension plan cannot reduce private pension distributions by more than 50 percent.

Several factors likely play a role in a firm’s decision to adopt an integrated pension plan. First, there are several payroll considerations that accompany an integrated pension plan; in particular, firms can reduce their required OASDI payment. OASDI, which stands for old age, survivors, and disability insurance, is the payroll tax that employer’s collect from employees to fund the nation’s social security program. Employers withhold 6.2 percent from their employees' pay and then forward it to the government. For their part, employers must also pay 6.2 percent from their own funds. With pension integration, firms can offset part of this tax by reducing employee pension benefits.

Second, a non-integrated pension plan could result in lower-paid workers receiving combined pension and Social Security benefits that exceed their pre-retirement earnings, which could be considered unfair. Third, firms may view an integrated plan as a recruiting tool to attract and retain talented personnel. The thought is that integration could allow for higher pension benefits, within limits, for higher paid workers.

Pros and Cons of Defined Benefit Plans

Defined benefit pension plans offer participants security, in that they know their income stream upon retirement. Also, the Pension Guaranty Corporation (PBGC) protects the administration of their defined benefit plans. If something happened to the company, the PBGC would step in and cover pension distributions.

A disadvantage of a defined benefit pension plan is that a participant’s income potential may be limited. For example, a 401(k) plan participant would be able to choose individual investments that may lead to higher annual returns. Along those lines, another potential disadvantage of defined benefit pension plans is that participants do not have control over the investments.

RELATED TERMS
  1. Advance Funded Pension Plan

    An advance funded pension plan is funded concurrently with the ...
  2. Unfunded Pension Plan

    An unfunded pension plan is an employer-managed retirement plan ...
  3. Guaranteed Minimum Pension - GMP

    A guaranteed minimum pension could be earned in the U.K.'s public ...
  4. Pension Shortfall

    A pension shortfall occurs when a company with a defined benefit ...
  5. Current Service Benefit

    A current service benefit is the pension benefit earned by an ...
  6. Pension Benefit Guaranty Corporation ...

    Pension Benefit Guaranty Corporation - PBGC is an agency guaranteeing ...
Related Articles
  1. Retirement

    New 401(k) Pension Rollover Rule: Pros and Cons

    Is the new rule allowing participants to roll their 401(k) balances into pensions a good idea?
  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

    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. ...
  4. Financial Advisor

    How Do Pension Funds Work?

    Traditional private pension funds are well regulated by the government through ERISA and the PBGC. Alternative investments are aiding portfolio returns.
  5. Retirement

    A Primer On Defined-Benefit Pension Plans

    Most of us will rely on a pension plan in the future, so it's best to know the details of the various plans before signing up.
  6. Personal Finance

    Can Blockchain Solve the Global Retirement Crisis?

    Blockchain comes at a crucial time and may represent the savior of pension plans everywhere.
  7. Retirement

    Florida's Surprisingly Flexible State Retirement System

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

    Can Your Pension’s Cost-of-Living Clause Be Frozen?

    Recent events in New Jersey prove that relying on a pension alone to fund your retirement is risky. Make sure you have multiple retirement income sources.
  9. Retirement

    The 5 Countries With The Best Retirement Plans

    Which 5 Countries offer the best retirement plans to their citizens? They're not all in Europe.
  10. Retirement

    Should You Accept A Pension Buyout?

    Pension buyout offers are all the rage among corporations wanting to reduce their corporate pension liability. But are they a good deal for the investor?
Hot Definitions
  1. Futures Contract

    An agreement to buy or sell the underlying commodity or asset at a specific price at a future date.
  2. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  3. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  4. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  5. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  6. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
Trading Center