When it comes to planning for retirement, it’s important to understand the different types of pension plans that are available. A pension plan is a type of retirement plan that is funded by your employer, which provides you with a steady stream of income during your retirement years. There are several types of pension plans, each with its own set of features and benefits.
The most common type of pension plan is a defined benefit plan, also known as a traditional pension plan. With this type of plan, your retirement benefits are based on a formula that takes into account your salary, years of service, and age. This means that the longer you work for your employer and the higher your salary, the larger your pension benefit will be. Another type of pension plan is a defined contribution plan, such as a 401(k) or 403(b). With this type of plan, you and your employer contribute a set amount of money each year, and your retirement benefits are based on the investment returns of those contributions.
Other types of pension plans include cash balance plans, which combine features of both defined benefit and defined contribution plans, as well as employee stock ownership plans (ESOPs), which allow employees to become owners of the company they work for. It’s important to review the different types of pension plans available and to understand which one your employer offers, as well as the potential benefits
