Pension Plans Essay

1844 WordsSep 3, 20128 Pages
Pension plans and postretirement benefits are each a form of deferred compensation which an employee may earn during their years of employment with a company. Postretirement benefit plans other than pensions include healthcare and life insurance as well as other elements for retired employees. The two most common types of pension plans are defined contribution and defined benefit pension plans. Most companies will employee an actuary trained in mathematics and statistics to aid companies in estimation of costs related to pension plans. An actuary will help the company arrive at its funded status on plan obligations. Details and accounting for these benefits are similar; however, some differences still exist. Pension plans are designed to set aside funds for employee retirement years. An employer feels a certain amount of obligation to provide pension plans for employees and in turn, pension plans are one of the benefits which boost employee morale and productivity. A pension plan is accomplished by setting aside funds during an individual’s working years so that upon retirement the accumulated funds plus earnings from investing those funds are available to replace wages (Spiceland, J.D., Sepe, J.F., & Nelson, M.W., 2011, p936). Two common types of pension plans are defined contribution pension plans and defined benefit pension plans. Defined contribution pension plans comprise nearly two-thirds of workers covered by pension plans today (Spiceland, J.D., Sepe, J.F., & Nelson, M.W., 2011, p937). In a defined contribution pension plan a company commits only to fixed annual contributions therefore, no benefits are paid after retirement. In other words, the employee bears all investment risks while the company has no formal obligation to benefits beyond the periodic contributions (Asthana, S., 2008). There are designated options for which an employee can

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