PENSION PLAN Meaning and
Definition
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A pension plan is a financial arrangement provided by an employer or a government entity that helps an individual save money for their retirement years. It is a formalized system that allows employees or participants to contribute a portion of their income toward a retirement fund, which is then managed by the pension plan administrator.
Typically, pension plans are structured on a defined benefit or defined contribution basis. In a defined benefit plan, the retiree is entitled to receive a predetermined amount of income during their retirement, usually based on factors such as salary history and years of service. The employer bears the investment and longevity risks associated with providing the promised benefits.
On the other hand, a defined contribution plan allows the individual to contribute a portion of their pre-tax income into an investment account, such as a 401(k) plan, often with an employer match. The accumulated funds in the account are invested in various assets, typically stocks, bonds, or mutual funds. The retirement income is then determined by the performance of these investments and the contributions made over time.
Pension plans often provide tax advantages as contributions are generally made with pre-tax dollars, allowing the savings to grow tax-deferred until retirement. However, there may be tax implications when funds are withdrawn during retirement. The goal of a pension plan is to ensure that individuals have sufficient funds to support themselves after they stop working, providing financial security during their golden years.
Common Misspellings for PENSION PLAN
- oension plan
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- 0ension plan
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Etymology of PENSION PLAN
The word "pension" has its origins in the Latin word "pensio", which means "payment" or "reward". During the Middle Ages, the term was used to describe a stipend or regular payment granted to someone, often in recognition of their services or as a form of support.
The modern usage of "pension plan" emerged in the early 20th century when governments and private corporations began implementing retirement savings programs for employees. The word "plan" refers to the structured nature of these savings programs, which involve contributions made by both the employer and employee to ensure future income during retirement.
Similar spelling words for PENSION PLAN
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