Retirement Pension Plan Types and Their Key Features
A Retirement Pension Plan is a kind of retirement plan that is tax exempted, where an employer makes contributions towards a pool of funds set aside for the future benefit of an employee. The funds contributed are then invested on behalf of the employee, in order to reap its benefits upon reaching retirement age.
A Retirement Pension Plan is a method in which employees at definite intervals transfer a part of their earnings towards a retirement income. There are two basic types of retirement pension plans namely defined contribution plan and defined benefit plan.
In a defined contribution plan, the employer makes predefined contributions or makes contributions on an annual basis for the employee. The benefit thus received is based on the vested portion of the accrued value of the investments and the contributions earned. Hence, the final amount of the benefit depends on the investment’s performance.
In a defined benefit plan, the employer guarantees the employee that he will receive a definite amount upon retirement. It is a profit sharing plan, where an employer can contribute 15 percent of the total eligible compensation annually. The plan offers much needed flexibility when needed by the employer. This type of plan encourages the employees to make their own plan contributions, thus enabling the employer to lower plan costs. The main advantage of defined benefit plan is to allow more contributions as compared to profit sharing plan.
A Retirement Pension Plan is a method in which employees at definite intervals transfer a part of their earnings towards a retirement income. There are two basic types of retirement pension plans namely defined contribution plan and defined benefit plan.
In a defined contribution plan, the employer makes predefined contributions or makes contributions on an annual basis for the employee. The benefit thus received is based on the vested portion of the accrued value of the investments and the contributions earned. Hence, the final amount of the benefit depends on the investment’s performance.
In a defined benefit plan, the employer guarantees the employee that he will receive a definite amount upon retirement. It is a profit sharing plan, where an employer can contribute 15 percent of the total eligible compensation annually. The plan offers much needed flexibility when needed by the employer. This type of plan encourages the employees to make their own plan contributions, thus enabling the employer to lower plan costs. The main advantage of defined benefit plan is to allow more contributions as compared to profit sharing plan.
The Other Retirement Pension Plans are:
Hybrid plans: These are a sophisticated bunch of plans that enjoy best of both the worlds. Not only do they have defined contribution plan features, but they also have features of defined benefit plans. Plans like Target benefit plans and Age-weighted profit sharing plans though are termed as defined contribution plans, these are inclusive of defined benefit plan features which favor older employees.
Employee Stock Ownership Plans: These are defined contribution plans that invest in the stocks of the employer. They also enable employees to obtain company stocks and enjoy the tax advantages from the sales of these securities.
Simple plans: These are types of retirement pension plans that allow employers to have retirement plans without the restriction of compliance with regular plans. Despite being easier to administer, the limitations imposed sometimes make regular plans seem easier and advantageous.
Hence, retirement is not as scary as it looks when the consumer has many options available to lead a comfortable life. Even after retirement, a person can live a comfortable life with constant pension coming at regular intervals.
Employee Stock Ownership Plans: These are defined contribution plans that invest in the stocks of the employer. They also enable employees to obtain company stocks and enjoy the tax advantages from the sales of these securities.
Simple plans: These are types of retirement pension plans that allow employers to have retirement plans without the restriction of compliance with regular plans. Despite being easier to administer, the limitations imposed sometimes make regular plans seem easier and advantageous.
Hence, retirement is not as scary as it looks when the consumer has many options available to lead a comfortable life. Even after retirement, a person can live a comfortable life with constant pension coming at regular intervals.