Retirement is something that often can be miss-understood and can bring dozens of questions along with it. While we may think asking, “What is a pension plan?” is a simple question with a simple answer; that unfortunately isn’t the case. With the thought of a Pension Plan the majority of us will automatically envision some big wig that worked tirelessly for the majority of their life only to then retire and have the newest vehicles and a monthly check they can blow on whatever their little heart desires. While technically this could be the case for some, there is so much more to Pension Plans than a nice check each month during retirement.
So what is the definition of a Pension Plan? A Pension Plan is a benefit plan that allows workers to receive a specific and defined benefit upon retirement. In order to receive these pension benefits you need to meet or exceed certain qualifications and criteria that are set in place by your employer, the most common qualification needed is to meet a time requirement, working for the company for “x” amount of years. Once this time has been met, the employee will be eligible for the Pension Plan benefits upon retirement.
Unlike other plans a Pension is managed solely by the employers, this means you, as the employee will have no responsibility in assessing, choosing or contributing to the plan. Pensions will typically pay out according to time, meaning the longer you’ve been employed at the same employer, the higher payout you could receive upon retirement from your pension.
Not everyone can qualify for a Pensions Plan. Generally speaking, Pensions Plans are available to those who work in some sort of a unionized workplace. A common fear regarding Pensions Plans is the potential of losing a plan that you have been introduced to. If you leave your employer where your Pensions Plan is currently set in place, it is possible that upon terminating your employment, you will be terminating your Pension as well. The only way to avoid this is by being “vested” in your current/previous employer. When you are “vested” this will mean that whatever level of qualifications you met will be the highest rank you will achieve and your benefits will freeze, remaining in place for you to receive upon retirement. While often these benefits are small, it is still a welcomes benefit for those who have left the workplace in which their Pension was originated.
A common question that comes with Pension Plans is if you will need another retirement plan.
While generally speaking the answer is “yes,” it is solely your decision. Assess how your Pension Plan, Social Security and any other sources of income you may have will come into play. If these alone are enough to meet your financial needs upon retirement then you will likely not need a secondary retirement plan. However, if your financial needs will not be met by the income you currently have set aside for you, you may need to look into other options for retirement income.
There are many different employers and companies who specialize and contribute to different Pension Plans throughout the country. If you have further questions regarding what a Pension Plan is, or if you could be eligible for a Pension Plan, here is a list of Frequently Asked Questions to help you find the answers that you need.