The Bureau of Labor Statistic’s National Compensation Survey shows the sheer number of workers participating in their company’s pension plan every year. In 2016, 133million workers were involved with one of the many plans available to them.
A pension plan is basically the same as a retirement plan, requiring the employer to contribute to the funds that are set aside for the worker’s future. There are several types of pension plans, each one having their own requirements and benefits. Keep reading to find out more!
We have listed a few common types of pension plans below, to understand which one you should choose contact one of the pension advisors Bournemouth.
1) The defined ‘contribution plan’
This plans involves the employer making a fixed contribution. The pool of funds grows as a result of;
- Investment Earnings
- Occasional allocations of the non-vested funds, belonging to the fired employee.
For a deeper understanding of the complexity and feasibility of this scheme, enlist the help of one of the many pension advisors Bournemouth out there!
2) The defined ‘benefit plan’
This plan is based on a specified payment, which is given to the employee when they retire. It’s a lump sum, predetermined by a formula which is based on:
- Their earning history
- Their age
- Their tenure
It isn’t directly dependent on their investment returns, as seen in the defined contribution plan.
3) The Employer Private Pension Scheme
This plan involves a employer sponsoring their employees. It requires the employees to make contributions to their future by agreeing for a percentage of money to be cut from their monthly wages. This amount can be matched by their employer, though you should note that this is optional and not a requirement of the retirement plan. The 401(K) also has short term benefits as employees can withdraw money if needed.
4) The Cash Balance Plan
This plan combines features of the benefit plan and the contribution plan described above. It is a hybrid plan, which allows the employees to share the profit. It should be noted that if the employer or ‘business owner’ is classed as the oldest employee, they can benefit the most under this plan. Though they also assume the risk involved in investing the money.
Choose a plan that fits your needs best. Remember, it could make or break your future!
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