Defined benefit pension plan
Encyclopedia
In economics
, a defined benefit pension plan is a major type of pension plan in which an employer promises a specified monthly benefit on retirement that is predetermined by a formula
based on the employee's earnings
history, tenure of service and age
, rather than depending on investment
returns. It is 'defined' in the sense that the formula for computing the employer's contribution is known in advance. In the United States
, specifies a defined benefit plan to be any pension plan that is not a defined contribution plan where a defined contribution plan is any plan with individual accounts. A traditional pension plan that defines a benefit for an employee upon that employee's retirement is a defined benefit plan.
The most common type of formula used is based on the employee’s terminal earnings. Under this formula, benefits are based on a percentage of average earnings during a specified number of years at the end of a worker’s career.
In recent years, a new type of defined benefit plan, a cash balance plan
, has become more prevalent for larger companies. Under this type of plan, benefits are computed as a percentage of each employee’s account balance. Employers specify a contribution—usually based on a percentage of the employee’s earnings—and a rate of interest on that contribution that will provide a predetermined amount at retirement, usually in the form of a lump sum.
In the private sector, defined benefit plans are typically funded exclusively by employer contributions. For very small companies with one owner and a handful of younger employees, the business owner generally receives a high percentage of the benefits. In the public sector, defined benefit plans often require employee contributions.
Many companies with these plans face a deficit between the money currently in their plans and the total amount of their pension obligations. Contributions may be made by the employee, the employer, or both. The employer bears the investment risk.
, the maximum retirement benefit permitted in 2011 under a defined benefit plan is $195,000 (up from $185,000 in 2008). Defined benefit pension plans currently do not have contribution limits.
The liability of the pension lies with the employer who is responsible for making the decisions. Employer contributions to a defined benefit pension plan are based on a formula that calculates the contributions needed to meet the defined benefit. These contributions are actuarially determined taking into consideration the employee's life expectancy and normal retirement age, possible changes to interest rates, annual retirement benefit amount, and the potential for employee turnover.
Employees are always entitled to the vested accrued benefit earned to date and if an employee leaves the company before retirement, the benefits earned so far are frozen and held in a trust for the employee until retirement age. The defined benefit pension plan must allow its vested employees to receive their benefits no later than the 60th day after the end of the plan year in which they have been employed for ten years or leave their employer. Employees who reach age 65 or the specified retirement age in their plan can also collect the benefits. Starting in 2002, the maximum benefit is now reduced for retirement prior to age 62, and increased for retirement after age 65.
The plan cannot force you to receive your benefits before normal retirement age unless you have less than $5,000 vested in the plan. However, you must begin to receive your benefits no later than April 1 following the last year of employment or age 70½, whichever is later.
Defined benefit plans distribute their benefits through life annuities. In a life annuity, employees receive equal periodic benefit payments (monthly, quarterly, etc.) for the rest of their lives. A defined benefit pension plan allows joint distributions so a surviving spouse can still receive 50 percent of your payment.
In the United States
, 88 percent of public employees are covered by a defined benefit pension plan.
In the United States, Federal public sector plans are governed by the Tax Code and Federal law, while state and local public sector plans are governed by the Tax Code and state law. Thus the funding requirements, benefits, plan solvency, and participant rights and obligations vary significantly. Private sector plans are governed by the Employee Retirement Income Security Act
(ERISA) of 1974. This law contains provisions rooted in the Tax Code and enforced by the Internal Revenue Service
, but, in Title I of ERISA, also provides a body of Federal law governing employee benefit plans that preempts state law. Rooted in the principles of trust law, Title I of ERISA governs the fiduciary conduct and reporting requirements of private sector employee benefits plans through a system of exclusively Federal rights and remedies. Title I is administered by the Employee Benefits Security Administration
(EBSA) at the United States Department of Labor
. EBSA is led by the Assistant Secretary of Labor for Employee Benefits, a Sub-Cabinet level position requiring nomination by the President of the United States and confirmation by the United States Senate. The current Assistant Secretary of Labor for Employee Benefits and head of the Employee Benefits Security Administration is the Hon. Phyllis Borzi
. Past Assistant Secretaries include the Hon. Bradford P. Campbell
, the Hon. Ann L. Combs and the Hon. Olena Berg-Lacy.
workers, by the government itself. A traditional form of a defined benefit plan is the final salary plan, under which the pension paid is equal to the number of years worked, multiplied by the member's salary at retirement, multiplied by a factor known as the accrual rate. The final accrued amount is available as a monthly pension or a lump sum.
The benefit in a defined benefit pension plan is determined by a formula that can incorporate the employee's pay, years of employment, age at retirement, and other factors. A simple example is a Dollars Times Service plan design that provides a certain amount per month based on the time an employee works for a company. For example, a plan offering $100 a month per year of service would provide $3,000 per month to a retiree with 30 years of service. While this type of plan is popular among unionized workers, Final Average Pay (FAP) remains the most common type of defined benefit plan offered in the United States. In FAP plans, the average salary over the final years of an employee's career determines the benefit amount.
In the United Kingdom
, benefits are typically indexed for inflation (known as Retail Prices Index
(RPI)) as required by law for registered pension plans. Inflation during an employee's retirement affects the purchasing power of the pension; the higher the inflation rate, the lower the purchasing power of a fixed annual pension. This effect can be mitigated by providing annual increases to the pension at the rate of inflation (usually capped, for instance at 5% in any given year). This method is advantageous for the employee since it stabilizes the purchasing power of pensions to some extent.
If the pension plan allows for early retirement, payments are often reduced to recognize that the retirees will receive the payouts for longer periods of time. In the US, (under the ERISA rules), any reduction factor less than or equal to the actuarial early retirement reduction factor is acceptable.
Many DB plans include early retirement provisions to encourage employees to retire early, before the attainment of normal retirement age (usually age 65). Some of those provisions come in the form of additional temporary or supplemental benefits, which are payable to a certain age, usually before attaining normal retirement age.
Basic premise behind most rules are you cannot use a qualified pension plan to give highly paid employees (or owners) a lot of money through a qualified plan (through this tax advantaged financial instrument).
In an unfunded defined benefit pension, no assets are set aside and the benefits are paid for by the employer or other pension sponsor as and when they are paid. This method of financing is known as Pay-as-you-go (PAYGO or PAYG). In the US, ERISA explicitly forbids pay go for private sector plans.
In a funded plan, contributions from the employer, and sometimes also from plan members, are invested in a fund towards meeting the benefits. The future returns on the investments, and the future benefits to be paid, are not known in advance, so there is no guarantee that a given level of contributions will be enough to meet the benefits. Typically, the contributions to be paid are regularly reviewed in a valuation of the plan's assets and liabilities, carried out by an actuary
to ensure that the pension fund will meet future payment obligations. This means that in a defined benefit pension, investment risk and investment rewards are typically assumed by the sponsor/employer and not by the individual. If a plan is not well-funded, the plan sponsor may not have the financial resources to continue funding the plan.
In many countries, such as the USA, the UK and Australia
, most private defined benefit plans are funded, because governments there provide tax incentives to funded plans (in Australia they are mandatory). In the United States, private employers must pay an insurance-type premium to the Pension Benefit Guaranty Corporation
, a government agency whose role is to encourage the continuation and maintenance of voluntary private pension plans and provide timely and uninterrupted payment of pension benefits. The Social Security system in the United States is funded through a payroll tax (FICA) that is paid by employees and employers. The proceeds of this tax are paid into the Social Security Trust Funds which had a balance of $2,654,496 million as of September, 2011.
The age bias, reduced portability and open ended risk make defined benefit plans better suited to large employers with less mobile workforces, such as the public sector (which has open-ended support from taxpayers).
Defined benefit plans are sometimes criticized as being paternalistic as they enable employers or plan trustees to make decisions about the type of benefits and family structures and lifestyles of their employees. However they are typically more valuable than defined contribution plans in most circumstances and for most employees (mainly because the employer tends to pay higher contributions than under defined contribution plans), so such criticism is rarely harsh.
The "cost" of a defined benefit plan is not easily calculated, and requires an actuary
or actuarial software. However, even with the best of tools, the cost of a defined benefit plan will always be an estimate based on economic and financial assumptions. These assumptions include the average retirement age and lifespan of the employees, the returns to be earned by the pension plan's investments and any additional taxes or levies, such as those required by the Pension Benefit Guaranty Corporation
in the U.S. So, for this arrangement, the benefit is relatively secure but the contribution is uncertain even when estimated by a professional.
or other tax
es.
The United States Social Security
system is similar to a defined benefit pension arrangement, albeit one that is constructed differently than a pension offered by a private employer.
Individuals that have worked in the UK and have paid certain levels of national insurance deductions can expect an income from the state pension scheme after their normal retirement. The state pension is currently divided into two parts: the basic state pension, State Second [tier] Pension scheme called S2P. Individuals will qualify for the basic state pension if they have completed sufficient years contribution to their national insurance record. The S2P pension scheme is earnings related and depends on earnings in each year as to how much an individual can expect to receive. It is possible for an individual to forgo the S2P payment from the state, in lieu of a payment made to an appropriate pension scheme of their choice, during their working life. For more details see UK pension provision
.
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
, a defined benefit pension plan is a major type of pension plan in which an employer promises a specified monthly benefit on retirement that is predetermined by a formula
Formula
In mathematics, a formula is an entity constructed using the symbols and formation rules of a given logical language....
based on the employee's earnings
Earnings
Earnings are the net benefits of a Corporation's operation. Earnings is also the amount on which corporate tax is due. For an analysis of specific aspects of corporate operations several more specific terms are used as EBIT -- earnings before interest and taxes, EBITDA - earnings before...
history, tenure of service and age
Ageing
Ageing or aging is the accumulation of changes in a person over time. Ageing in humans refers to a multidimensional process of physical, psychological, and social change. Some dimensions of ageing grow and expand over time, while others decline...
, rather than depending on investment
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
returns. It is 'defined' in the sense that the formula for computing the employer's contribution is known in advance. In the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, specifies a defined benefit plan to be any pension plan that is not a defined contribution plan where a defined contribution plan is any plan with individual accounts. A traditional pension plan that defines a benefit for an employee upon that employee's retirement is a defined benefit plan.
The most common type of formula used is based on the employee’s terminal earnings. Under this formula, benefits are based on a percentage of average earnings during a specified number of years at the end of a worker’s career.
In recent years, a new type of defined benefit plan, a cash balance plan
Cash balance plan
A cash balance plan is a defined benefit retirement plan that maintains hypothetical individual employee accounts like a defined contribution plan...
, has become more prevalent for larger companies. Under this type of plan, benefits are computed as a percentage of each employee’s account balance. Employers specify a contribution—usually based on a percentage of the employee’s earnings—and a rate of interest on that contribution that will provide a predetermined amount at retirement, usually in the form of a lump sum.
In the private sector, defined benefit plans are typically funded exclusively by employer contributions. For very small companies with one owner and a handful of younger employees, the business owner generally receives a high percentage of the benefits. In the public sector, defined benefit plans often require employee contributions.
Many companies with these plans face a deficit between the money currently in their plans and the total amount of their pension obligations. Contributions may be made by the employee, the employer, or both. The employer bears the investment risk.
Overview
When participating in a defined benefit pension plan, an employer promises to pay their employees a specific benefit for life beginning at retirement. The benefit is calculated in advance using a formula based on age, earnings, and years of service. In the United StatesUnited States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, the maximum retirement benefit permitted in 2011 under a defined benefit plan is $195,000 (up from $185,000 in 2008). Defined benefit pension plans currently do not have contribution limits.
The liability of the pension lies with the employer who is responsible for making the decisions. Employer contributions to a defined benefit pension plan are based on a formula that calculates the contributions needed to meet the defined benefit. These contributions are actuarially determined taking into consideration the employee's life expectancy and normal retirement age, possible changes to interest rates, annual retirement benefit amount, and the potential for employee turnover.
Employees are always entitled to the vested accrued benefit earned to date and if an employee leaves the company before retirement, the benefits earned so far are frozen and held in a trust for the employee until retirement age. The defined benefit pension plan must allow its vested employees to receive their benefits no later than the 60th day after the end of the plan year in which they have been employed for ten years or leave their employer. Employees who reach age 65 or the specified retirement age in their plan can also collect the benefits. Starting in 2002, the maximum benefit is now reduced for retirement prior to age 62, and increased for retirement after age 65.
The plan cannot force you to receive your benefits before normal retirement age unless you have less than $5,000 vested in the plan. However, you must begin to receive your benefits no later than April 1 following the last year of employment or age 70½, whichever is later.
Defined benefit plans distribute their benefits through life annuities. In a life annuity, employees receive equal periodic benefit payments (monthly, quarterly, etc.) for the rest of their lives. A defined benefit pension plan allows joint distributions so a surviving spouse can still receive 50 percent of your payment.
In the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, 88 percent of public employees are covered by a defined benefit pension plan.
In the United States, Federal public sector plans are governed by the Tax Code and Federal law, while state and local public sector plans are governed by the Tax Code and state law. Thus the funding requirements, benefits, plan solvency, and participant rights and obligations vary significantly. Private sector plans are governed by the Employee Retirement Income Security Act
Employee Retirement Income Security Act
The Employee Retirement Income Security Act of 1974 is an American federal statute that establishes minimum standards for pension plans in private industry and provides for extensive rules on the federal income tax effects of transactions associated with employee benefit plans...
(ERISA) of 1974. This law contains provisions rooted in the Tax Code and enforced by the Internal Revenue Service
Internal Revenue Service
The Internal Revenue Service is the revenue service of the United States federal government. The agency is a bureau of the Department of the Treasury, and is under the immediate direction of the Commissioner of Internal Revenue...
, but, in Title I of ERISA, also provides a body of Federal law governing employee benefit plans that preempts state law. Rooted in the principles of trust law, Title I of ERISA governs the fiduciary conduct and reporting requirements of private sector employee benefits plans through a system of exclusively Federal rights and remedies. Title I is administered by the Employee Benefits Security Administration
Employee Benefits Security Administration
The Employee Benefits Security Administration is an agency of the United States Department of Labor responsible for administering, regulating and enforcing the provisions of Title I of the Employee Retirement Income Security Act of 1974 . At the time of its name change in February 2003, EBSA was...
(EBSA) at the United States Department of Labor
United States Department of Labor
The United States Department of Labor is a Cabinet department of the United States government responsible for occupational safety, wage and hour standards, unemployment insurance benefits, re-employment services, and some economic statistics. Many U.S. states also have such departments. The...
. EBSA is led by the Assistant Secretary of Labor for Employee Benefits, a Sub-Cabinet level position requiring nomination by the President of the United States and confirmation by the United States Senate. The current Assistant Secretary of Labor for Employee Benefits and head of the Employee Benefits Security Administration is the Hon. Phyllis Borzi
Phyllis Borzi
Phyllis C. Borzi is the Obama administration's Assistant Secretary for Employee Benefits Security of the United States Department of Labor, the official in charge of the Employee Benefits Security Administration.-Experience:...
. Past Assistant Secretaries include the Hon. Bradford P. Campbell
Bradford P. Campbell
Bradford P. Campbell was the Assistant Secretary for Employee Benefits Security of the United States Department of Labor , the official in charge of the Employee Benefits Security Administration . Mr. Campbell was nominated by President George W. Bush as Assistant Secretary on May 3, 2007, and was...
, the Hon. Ann L. Combs and the Hon. Olena Berg-Lacy.
Benefit Plan
Traditionally, retirement plans have been administered by institutions which exist specifically for that purpose, by large businesses, or, for governmentGovernment
Government refers to the legislators, administrators, and arbitrators in the administrative bureaucracy who control a state at a given time, and to the system of government by which they are organized...
workers, by the government itself. A traditional form of a defined benefit plan is the final salary plan, under which the pension paid is equal to the number of years worked, multiplied by the member's salary at retirement, multiplied by a factor known as the accrual rate. The final accrued amount is available as a monthly pension or a lump sum.
The benefit in a defined benefit pension plan is determined by a formula that can incorporate the employee's pay, years of employment, age at retirement, and other factors. A simple example is a Dollars Times Service plan design that provides a certain amount per month based on the time an employee works for a company. For example, a plan offering $100 a month per year of service would provide $3,000 per month to a retiree with 30 years of service. While this type of plan is popular among unionized workers, Final Average Pay (FAP) remains the most common type of defined benefit plan offered in the United States. In FAP plans, the average salary over the final years of an employee's career determines the benefit amount.
In the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
, benefits are typically indexed for inflation (known as Retail Prices Index
Retail Prices Index (United Kingdom)
In the United Kingdom, the Retail Prices Index or Retail Price Index is a measure of inflation published monthly by the Office for National Statistics. It measures the change in the cost of a basket of retail goods and services.-History:...
(RPI)) as required by law for registered pension plans. Inflation during an employee's retirement affects the purchasing power of the pension; the higher the inflation rate, the lower the purchasing power of a fixed annual pension. This effect can be mitigated by providing annual increases to the pension at the rate of inflation (usually capped, for instance at 5% in any given year). This method is advantageous for the employee since it stabilizes the purchasing power of pensions to some extent.
If the pension plan allows for early retirement, payments are often reduced to recognize that the retirees will receive the payouts for longer periods of time. In the US, (under the ERISA rules), any reduction factor less than or equal to the actuarial early retirement reduction factor is acceptable.
Many DB plans include early retirement provisions to encourage employees to retire early, before the attainment of normal retirement age (usually age 65). Some of those provisions come in the form of additional temporary or supplemental benefits, which are payable to a certain age, usually before attaining normal retirement age.
US Laws and Regulations
In the US, there are many laws and regulations concerning pension plans. For a defined benefit plan, the laws/regulations that most commonly affect defined benefit (DB) pension plans include:- IRC 401(a)(17): qualified DB plans must use pay that is the smaller of actual pensionable pay versus a dollar limit (called the 401(a)(17) limit) that changes yearly
- IRC 415: qualified DB plans must limit the dollar amount of the benefit paid from the plan under certain circumstances
- Non discimination rules: IRC 410(b), IRC 401(a)(4), IRC 401(a)(26) Broadly speaking, forbids qualified DB plans from giving large amount of benefit to highly compensated employees
- Rules on distributions: lump sum must be no smaller than the lump sum calculated using mandated mortality and interest rate (IRC 417(e)), spouse consent necessary for any non joint and survivor form of benefit (joint and survivor percent must be 50% or larger)
- Rules against assignment, garnishment
- Top heavy rules: benefits for all non highly compensated employees must be increased if the benefits for highly compensated employees are too large
Basic premise behind most rules are you cannot use a qualified pension plan to give highly paid employees (or owners) a lot of money through a qualified plan (through this tax advantaged financial instrument).
Funding
Defined benefit plans may be either funded or unfunded.In an unfunded defined benefit pension, no assets are set aside and the benefits are paid for by the employer or other pension sponsor as and when they are paid. This method of financing is known as Pay-as-you-go (PAYGO or PAYG). In the US, ERISA explicitly forbids pay go for private sector plans.
In a funded plan, contributions from the employer, and sometimes also from plan members, are invested in a fund towards meeting the benefits. The future returns on the investments, and the future benefits to be paid, are not known in advance, so there is no guarantee that a given level of contributions will be enough to meet the benefits. Typically, the contributions to be paid are regularly reviewed in a valuation of the plan's assets and liabilities, carried out by an actuary
Actuary
An actuary is a business professional who deals with the financial impact of risk and uncertainty. Actuaries provide expert assessments of financial security systems, with a focus on their complexity, their mathematics, and their mechanisms ....
to ensure that the pension fund will meet future payment obligations. This means that in a defined benefit pension, investment risk and investment rewards are typically assumed by the sponsor/employer and not by the individual. If a plan is not well-funded, the plan sponsor may not have the financial resources to continue funding the plan.
In many countries, such as the USA, the UK and Australia
Superannuation in Australia
Superannuation is a retirement program in Australia. It has a compulsory element whereby employers are required by law to pay an additional amount based on a proportion of an employee's salaries and wages into a complying superannuation fund.An individual's superannuation fund can be accessed...
, most private defined benefit plans are funded, because governments there provide tax incentives to funded plans (in Australia they are mandatory). In the United States, private employers must pay an insurance-type premium to the Pension Benefit Guaranty Corporation
Pension Benefit Guaranty Corporation
The Pension Benefit Guaranty Corporation is an independent agency of the United States government that was created by the Employee Retirement Income Security Act of 1974 to encourage the continuation and maintenance of voluntary private defined benefit pension plans, provide timely and...
, a government agency whose role is to encourage the continuation and maintenance of voluntary private pension plans and provide timely and uninterrupted payment of pension benefits. The Social Security system in the United States is funded through a payroll tax (FICA) that is paid by employees and employers. The proceeds of this tax are paid into the Social Security Trust Funds which had a balance of $2,654,496 million as of September, 2011.
Advantages and drawbacks
Traditional defined benefit plan designs (because of their typically flat accrual rate and the decreasing time for interest discounting as people get closer to retirement age) tend to exhibit a J-shaped accrual pattern of benefits, where the present value of benefits grows quite slowly early in an employee's career and accelerates significantly in mid-career: in other words it costs more to fund the pension for older employees than for younger ones (an "age bias"). Defined benefit pensions tend to be less portable than defined contribution plans, even if the plan allows a lump sum cash benefit at termination. Most plans, however, pay their benefits as an annuity, so retirees do not bear the risk of low investment returns on contributions or of outliving their retirement income. The open-ended nature of these risks to the employer is the reason given by many employers for switching from defined benefit to defined contribution plans over recent years. The risks to the employer can sometimes be mitigated by discretionary elements in the benefit structure, for instance in the rate of increase granted on accrued pensions, both before and after retirement.The age bias, reduced portability and open ended risk make defined benefit plans better suited to large employers with less mobile workforces, such as the public sector (which has open-ended support from taxpayers).
Defined benefit plans are sometimes criticized as being paternalistic as they enable employers or plan trustees to make decisions about the type of benefits and family structures and lifestyles of their employees. However they are typically more valuable than defined contribution plans in most circumstances and for most employees (mainly because the employer tends to pay higher contributions than under defined contribution plans), so such criticism is rarely harsh.
The "cost" of a defined benefit plan is not easily calculated, and requires an actuary
Actuary
An actuary is a business professional who deals with the financial impact of risk and uncertainty. Actuaries provide expert assessments of financial security systems, with a focus on their complexity, their mathematics, and their mechanisms ....
or actuarial software. However, even with the best of tools, the cost of a defined benefit plan will always be an estimate based on economic and financial assumptions. These assumptions include the average retirement age and lifespan of the employees, the returns to be earned by the pension plan's investments and any additional taxes or levies, such as those required by the Pension Benefit Guaranty Corporation
Pension Benefit Guaranty Corporation
The Pension Benefit Guaranty Corporation is an independent agency of the United States government that was created by the Employee Retirement Income Security Act of 1974 to encourage the continuation and maintenance of voluntary private defined benefit pension plans, provide timely and...
in the U.S. So, for this arrangement, the benefit is relatively secure but the contribution is uncertain even when estimated by a professional.
Examples
Many countries offer state-sponsored retirement benefits, beyond those provided by employers, which are funded by payrollPayroll tax
Payroll tax generally refers to two different kinds of similar taxes. The first kind is a tax that employers are required to withhold from employees' wages, also known as withholding tax, pay-as-you-earn tax , or pay-as-you-go tax...
or other tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...
es.
The United States Social Security
Social Security (United States)
In the United States, Social Security refers to the federal Old-Age, Survivors, and Disability Insurance program.The original Social Security Act and the current version of the Act, as amended encompass several social welfare and social insurance programs...
system is similar to a defined benefit pension arrangement, albeit one that is constructed differently than a pension offered by a private employer.
Individuals that have worked in the UK and have paid certain levels of national insurance deductions can expect an income from the state pension scheme after their normal retirement. The state pension is currently divided into two parts: the basic state pension, State Second [tier] Pension scheme called S2P. Individuals will qualify for the basic state pension if they have completed sufficient years contribution to their national insurance record. The S2P pension scheme is earnings related and depends on earnings in each year as to how much an individual can expect to receive. It is possible for an individual to forgo the S2P payment from the state, in lieu of a payment made to an appropriate pension scheme of their choice, during their working life. For more details see UK pension provision
UK pension provision
Pensions in the United Kingdom fall into seven major divisions; Basic State Pension, State Second Pension , Occupational Pensions, Stakeholder Pensions, Group Personal Pensions and Personal or Individual Pensions...
.
See also
- Employee Benefits Security AdministrationEmployee Benefits Security AdministrationThe Employee Benefits Security Administration is an agency of the United States Department of Labor responsible for administering, regulating and enforcing the provisions of Title I of the Employee Retirement Income Security Act of 1974 . At the time of its name change in February 2003, EBSA was...
- Pension Benefit Guaranty CorporationPension Benefit Guaranty CorporationThe Pension Benefit Guaranty Corporation is an independent agency of the United States government that was created by the Employee Retirement Income Security Act of 1974 to encourage the continuation and maintenance of voluntary private defined benefit pension plans, provide timely and...
- Employee Retirement Income Security ActEmployee Retirement Income Security ActThe Employee Retirement Income Security Act of 1974 is an American federal statute that establishes minimum standards for pension plans in private industry and provides for extensive rules on the federal income tax effects of transactions associated with employee benefit plans...
- Bureau of Labor StatisticsBureau of Labor StatisticsThe Bureau of Labor Statistics is a unit of the United States Department of Labor. It is the principal fact-finding agency for the U.S. government in the broad field of labor economics and statistics. The BLS is a governmental statistical agency that collects, processes, analyzes, and...
- PensionPensionIn general, a pension is an arrangement to provide people with an income when they are no longer earning a regular income from employment. Pensions should not be confused with severance pay; the former is paid in regular installments, while the latter is paid in one lump sum.The terms retirement...
- Defined contribution planDefined contribution planIn economics, a defined contribution plan is a type of retirement plan in which the amount of the employer's annual contribution is specified. Individual accounts are set up for participants and benefits are based on the amounts credited to these accounts plus any investment earnings on the money...
- Cash balance planCash balance planA cash balance plan is a defined benefit retirement plan that maintains hypothetical individual employee accounts like a defined contribution plan...
- Superannuation
- RetirementRetirementRetirement is the point where a person stops employment completely. A person may also semi-retire by reducing work hours.Many people choose to retire when they are eligible for private or public pension benefits, although some are forced to retire when physical conditions don't allow the person to...
External links
- Defined benefit pension plan in glossary, U.S. Bureau of Labor Statistics Division of Information Services
- Defined Benefit Pension Plan in Glossary of Terms, GoodyearGoodyear Tire and Rubber CompanyThe Goodyear Tire & Rubber Company was founded in 1898 by Frank Seiberling. Goodyear manufactures tires for automobiles, commercial trucks, light trucks, SUVs, race cars, airplanes, farm equipment and heavy earth-mover machinery....
- Glossary, CitibankCitibankCitibank, a major international bank, is the consumer banking arm of financial services giant Citigroup. Citibank was founded in 1812 as the City Bank of New York, later First National City Bank of New York...
- Defined benefit plan, Business Dictionary
- Defined benefit plan, Investorwords
- What is a Defined Benefit Pension Plan?, New York Life
- Retirement Plans, Benefits & Savings, U.S. Department of Labor
- Defined benefit plans continue to fall: Study, Business insurance
- Defined benefit vs Defined contribution The Two Key Areas of Employee Benefits