What Is an Employee Pension Benefit Plan? (with pictures)

Geri Terzo
Geri Terzo
Employee pension plans are sponsored by employers and provide for a regular benefit payment after the worker retires from the company.
Employee pension plans are sponsored by employers and provide for a regular benefit payment after the worker retires from the company.

An employee pension benefit plan is a retirement scheme sponsored by an employer. It contains the assets that will be paid to plan members when they reach a designated age. The benefits are monetary payouts that individuals receive in either one large payment or smaller distributions over a longer period of time. Corporations and employees may make monetary deposits to the plan to increase the size of benefits, and a plan sponsor generally allocates money to the financial markets to grow the fund even further.

In employee pension benefit plans, the employer is in charge of making investment decisions.
In employee pension benefit plans, the employer is in charge of making investment decisions.

Generally, it is only the employees of some organization that receive membership into an employer-sponsored pension fund. These individuals may have an option to join or could be automatically enrolled upon employment. Typically, an employee pension benefit plan refers to a defined benefit type of fund. In this kind of plan, the sponsor is generally responsible for making all of the investment decisions on behalf of the employees. The other major type of retirement plan is a defined contribution scheme, which is a fund in which the employees select investments based on a series of options provided by an employer.

It is common for the sponsor of an employee pension benefit plan to make required deposits into a fund that is worth a designated minimum amount each year. If the plan sponsor is a public entity, such as a municipality, state, or non-profit hospital, for instance, political policies could determine the amount of contributions that must be made. This value can be based on the worth of pension benefits, which are the sponsor's liabilities, that must be paid at a given time. Deposits in an employee pension benefit plan are made to keep the fund at a healthy funding status and in order to ensure that there is enough money in the plan to pay retirees.

Employees become entitled to retirement benefits when they reach the formal age as designated by an employer or region. In some cases, an individual may be able to make withdrawals prior to retirement but there are usually some penalties or interest assigned to any deductions. Once a person nears the retirement age, they typically file some paperwork with an employer in order to prepare for the forthcoming distributions. The money owed to a person from an employee pension benefit plan could be paid all at once or in installments. If for any reason the funding status of a retirement plan is in financial jeopardy, so too could the benefits due plan members become compromised.

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    • Employee pension plans are sponsored by employers and provide for a regular benefit payment after the worker retires from the company.
      Employee pension plans are sponsored by employers and provide for a regular benefit payment after the worker retires from the company.
    • In employee pension benefit plans, the employer is in charge of making investment decisions.
      In employee pension benefit plans, the employer is in charge of making investment decisions.