Facts on Retirement & Pension in USA
A pension is an integral part of the resources needed to meet the retirement needs of a worker. Some pensions provide a stream of income for the balance of a worker's life. Studies have shown that most workers underestimate the amount of money needed to support themselves in retirement.
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Fact One -- What Is A Pension?
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A pension is a deferred savings plan that provides a stream of income to an individual. There are two types of pension plans, a defined benefit plan and a defined contribution plan. (Ref. 1.)
Fact Two - Defined Benefit Pension Plan
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A defined benefit pension plan provides a steady monthly payment that is based on a formula incorporating an individual's salary, length of service and other factors. The benefit is defined, and doesn't fluctuate based on investment performance. Also, recipients don't have separate accounts in the pension plan. (Ref. 1.)
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Fact Three - Defined Contribution Pension Plan
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A defined contribution pension plan doesn't guarantee a benefit level, and the employer contributes a set amount to each employee's separate account. When the employee retires, his pension is based on the dollar amount that is in the account. (Ref. 1.)
Fact Four - Employee Retirement Income Security Act
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The Employee Retirement Income Security Act is the primary federal law that regulates defined benefit pension plans. One rule requires plan sponsors to report on the plan's funding status to participants. (Ref. 2.)
Fact Five - Pension Benefit Guaranty Corporation (PBGC)
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The Pension Benefit Guaranty Corporation (PBGC) guarantees defined benefit pension plans in the U.S. Sponsors of defined benefit plans pay premiums to the PBGC to cover the plans. There are currently 44 million Americans in plans guaranteed by the PBGC. (Ref. 3.)
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