Pension Plan By: Jennifer Kimball

What is a Pension?! A Pension is a plan that sends you money after you are retired or aren't working anymore. Pensions are usually used for retired people but people with disabilities who are unable to work can get them too. A pension is usually set up by your employer. Money can be taken out of your paycheck every time you get one and put into your pension so it will build up over time. You can put however much money you’d like to in your pension.  “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.” plan 

Types of Pensions  State Pensions - Public employee pension plans “In the United States, public sector pensions are offered by federal, state and local levels of government. They are available to most, but not all, public sector employees. These employer contributions to these plans typically vest after some period of time”United Statespensionsfederalstatelocalvest

Types of Pension Plans  Private Pensions – Employee based pension plans “A retirement plan is an arrangement to provide people with an income during retirement when they are no longer earning a steady income from employment. Often retirement plans require both the employer and employee to contribute money to a fund during their employment in order to receive defined benefits upon retirement. It is a tax deferred savings vehicle that allows for the tax-free accumulation of a fund for later use as a retirement income. Funding can be provided in other ways, such as from labor unions, government agencies, or self-funded schemes. Pension plans are therefore a form of "deferred compensation".

How much must you contribute to a pension?  It all depends on the rules of your individual pension. Some pensions require that you contribute a specific percentage of pay for a specific number of years and be a specific age in order to receive distributions from your pension.

What are Distributions? Distributions are the payments that you receive when you aren’t working anymore and you own a pension plan. You can start receiving your distributions from your pension normally no later than when you reach the retirement age unless you are disabled and are unable to work, then you may be able to receive them early. 

Benefits and Disadvantages Some benefits of having a pension plan is that when you are retired or if you can’t work you have a monthly check so you can still live life like you normally did when you were working. Also, there is no worry about investing in something that might fail, unless the managing company fails, but there are some federal protections if that happens. Some disadvantages are that there is no opportunity to make any money like there would be if you for example invested in the stock market and all of your money is held until retirement. You have no control over how your money is invested.  Their-Pros-and-Cons?&id=

Protections for Pension Plans  “The Employee Retirement Income Security Act of 1974, or ERISA, protects the assets of millions of Americans so that funds placed in retirement plans during their working lives will be there when they retire.  ERISA is a federal law that sets minimum standards for pension plans in private industry. For example, if an employer maintains a pension plan, ERISA specifies when an employee must be allowed to become a participant, how long they have to work before they have a non-forfeitable interest in their pension, how long a participant can be away from their job before it might affect their benefit, and whether their spouse has a right to part of their pension in the event of their death. Most of the provisions of ERISA are effective for plan years beginning on or after January 1, 1975.” 

Protections for Pension Plans  ERISA does the following:  Requires plans to provide participants with information about the plan including important information about plan features and funding. The plan must furnish some information regularly and automatically. Some is available free of charge, some is not.  Sets minimum standards for participation, vesting, benefit accrual and funding. The law defines how long a person may be required to work before becoming eligible to participate in a plan, to accumulate benefits, and to have a non-forfeitable right to those benefits. The law also establishes detailed funding rules that require plan sponsors to provide adequate funding for your plan. 

Protection for Pension Plans  “Requires accountability of plan fiduciaries. ERISA generally defines a fiduciary as anyone who exercises discretionary authority or control over a plan's management or assets, including anyone who provides investment advice to the plan. Fiduciaries who do not follow the principles of conduct may be held responsible for restoring losses to the plan.  Gives participants the right to sue for benefits and breaches of fiduciary duty.  Guarantees payment of certain benefits if a defined plan is terminated, through a federally chartered corporation, known as the Pension Benefit Guaranty Corporation” 

Protections for Pension Plans  Pension Protection Act of 2006 Gives Pension holders specific rights and protections under federal law so that their pensions are more secure summary

Vested Being Vested means that you have the right to at least a percentage of the money that is in your retirement plan even if your company goes out of business or you are fired. The money in your plan will become vested after a specific period of time, usually 5 years. If you are vested and you lose your job or die then all of your money is safe. Some companies you are gradually vested so if you work for 2 years for example you might get 20%. All the money you’ve made will be paid to your beneficiary. The risk in pension plans is if you aren't vested you and you get fired you could loose all of your money. 

Pension Insurance Some pension plans are insured. If your employer cannot pay into your pension plan anymore than the insurance will pay all required premiums. But if your plan doesn’t have insurance then the pension plan ends, leaving the money that was in the plan but not adding to it. There are federal regulations that govern pension plans. 

Quiz 1. What is a pension plan? 2. Who are pension plans for? 3. What are distributions? 4. What does it mean to be vested? 5. What does insurance do for your pension plan?

Answers 1. A Pension is a plan that sends you money after you are retired or aren't working anymore 2. Pensions are usually used for retired people but people with disabilities who are unable to work can get them too if they have worked for a certain number of years for the company and are vested in their pension plan. 3. Distributions are the payments that you receive when you aren’t working anymore and you have a pension plan 4. Being Vested means that you have worked a certain number of years and are now gaurenteed payments from the pension plan upon your retirement even if your company goes out of business or you are fired. 5. If your employer cannot pay into your pension plan anymore then the insurance will pay all required premiums. But if your plan doesn’t have insurance then the pension plan ends, leaving the money that was in the plan but not adding to it.