What Are Employer-Based Pension Plans?
Employer-based pension plans are a free or low-cost benefit provided to employees. Most plans consist of contributions from both employers and employees, which helps employees grow their investments faster. Retirement pension plans cover expenses ranging from healthcare to retirement; employers make all of the investment decisions and are subject to all the risks. Employer-based pension plans are considered defined-benefit plans because retirement benefits can be calculated to determine the size of future payments.
Although the focus of this article is employer-based pension plans, it is worth mentioning defined-contribution plans. These plans allow employees to contribute a percentage of their income to fund their retirements. Defined-contribution plans allow employees to receive income after retiring. This retirement plan is typically tax-deferred. In other words, employees contribute pre-tax money.