A corporate pension or retirement plan is a benefit that employees can enjoy during retirement based on the length of time they spend in a company and their salaries. Currently, most government professionals in America get pensions. The Bureau of Labor Statistics shows that about 83% of local and state government workers opted for a workplace retirement plan. Of them, 77% took part in the actual pension program, while nearly 17% chose other retirement savings options. If you are in a private-sector job, your best chance of getting a pension plan is still through working for a large company.
According to Gary Saitowitz, pensions in corporate companies are also becoming a rarity. Last year, only 13% of corporate employees availed themselves of pension plans. In the place of pensions, 401(k) and other programs are getting prominence.
An overview of the pension plans
To be eligible for such a corporate retirement benefit, you first need to serve your company for a specific period. Your duration and salary record can determine the nature of payouts. Earlier, only employers used to contribute to the plan. However, this trend is disappearing now. Pension plans can be of two types – a defined-benefit plan and a defined-contribution plan. The first one belongs to a traditional model, while the latter one is more recent and popular.
What is a defined-benefit plan?
In this plan, the company pays a certain amount until the employee is alive. The benefit calculation happens before you retire, considering parameters like age, service duration, salary, and so on. Under this category, the highest retirement benefits can be $230,000, more than $225,000 in 2019. Gary Saitowitz informs that contributions to these savings can come from an employer or employer and employee together. From the pool of pension funds, retired employees receive payments from time to time. The payable amount can vary for beneficiaries because of life expectancy, retirement age, interest rates, and annual retirement benefit amount.
What is a defined-contribution plan?
These don’t involve any specific benefit amount. Employers, employees, or both can contribute to this account. Usually, savings go into investments; if there are returns, the amount gets added to the employee’s pension account, and in the event of loss, it will get deducted. One of the famous examples of this benefit is the thrift savings plan (TSP). Only federal government workers and Army members can be eligible for this, adds Gary Saitowitz. Once you retire, you can expect payouts in the form of an annuity. The amount you receive can vary depending on the current value of the account.
Defined-contribution plans have become a leading retirement plan choice in the corporate world in the US and other countries. These plans are witnessing continuous growth in America as employers find it more affordable than a defined-benefit plan.
As per the new rules, annuities available within defined-contribution retirement programs are transferable now. If you switch your job, you can transfer it to your other retirement plan at the new company. Like this, there are other changes also in the rules. You need to update your know