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Pension Plans

Pension Plans

The term "pension plan" is now used to describe a variety of retirement programs that companies establish as a benefit for their employeesincluding 401(k) plans, profit-sharing plans, simplified employee pension (SEP) plans, and Keogh plans. In the past pension plans were differentiated from other types of retirement plans in that employers were committed to providing a certain monetary level of benefits to employees upon retirement. These "defined benefit" plans, which were common among large employers with a unionized work force, have fallen into disfavor in recent years.

Some individuals also choose to establish personal pension plans to supplement their retirement savings. Making sound decisions about retirement is particularly important for self-employed persons and small business owners. Unlike the ever declining numbers of employees of large companies, who can simply participate in the pension plans and investment programs offered by their employers, entrepreneurs must set up and administer their own plans for themselves and for their employees.

Though establishing and funding pension plans can be both time-consuming and costly for small businesses, such programs are worth the effort for a number of reasons. In most cases, for example, employer contributions to retirement plans are tax deductible expenses. In addition, offering employees a comprehensive retirement program can help small businesses attract and retain qualified people who might otherwise seek the security of working for a company that does offer such benefits.

The number of small firms establishing pension plans grew considerably during the 1990s, but small employers still lag far behind larger ones in offering this type of benefit to employees. According to a 2005 Small Business Administration report, fewer small companies (those with 500 or fewer employees) offer any sort of retirement benefits to their employees than do larger firms35 percent versus 75 percent respectively in 2002. For firms with five employees or fewer, only 11 percent offer a retirement savings program, like a 401(k) or Simplified Employee Pension (SEP) plan.

PENSION PLAN OPTIONS FOR SMALL BUSINESSES

Small business owners can set up a wide variety of pension plans by filling out the necessary forms at any financial institution (a bank, mutual fund, insurance company, brokerage firm, etc.). The fees vary depending on the plan's complexity and the number of participants. Some employer-sponsored plans are required to file Form 5500 annually to disclose plan activities to the IRS. The preparation and filing of this complicated document can increase the administrative costs associated with a plan, as the business owner may require help from a tax advisor or plan administration professional. In addition, all the information reported on Form 5500 is open to public inspection.

A number of different types of pension plans are available. The most popular plans for small businesses all fall under the category of defined contribution plans. Defined contribution plans use an allocation formula to specify a percentage of compensation to be contributed by each participant. For example, an individual can voluntarily deduct a certain portion of his or her salary, in many cases before taxes, and place the money into a qualified retirement plan, where it will grow tax-deferred. Likewise, an employer can contribute a percentage of each employee's salary to the plan on their behalf, or match the contributions employees make.

In contrast to defined contribution plans are defined benefit plans. These plans calculate a desired level of benefits to be paid upon retirementusing a fixed monthly payment or a percentage of compensa-tionand then the employer contributes to the plan annually according to a formula so that the benefits will be available when needed. The amount of annual contributions is determined by an actuary, based upon the age, salary levels, and years of service of employees, as well as prevailing interest and inflation rates. In defined benefit plans, the employer bears the risk of providing a specified level of benefits to employees when they retire. This is the traditional idea of a pension plan that has often been used by large employers with a unionized work force.

In nearly every type of qualified pension plan, withdrawals made before the age of 59 1/2 are subject to an IRS penalty in addition to ordinary income tax. The plans differ in terms of administrative costs, eligibility requirements, employee participation, degree of discretion in making contributions, and amount of allowable contributions. Free information on qualified retirement plans is available through the Department of Labor at 800-998-7542, or on the Internet at www.dol.gov.

The most important thing to remember is that a small business owner who wants to establish a qualified plan for him or herself must also include all other company employees who meet minimum participation standards. As an employer, the small business owner can establish pension plans like any other business. As an employee, the small business owner can then make contributions to the plan he or she has established in order to set aside tax-deferred funds for retirement, like any other employee. The difference is that a small business owner must include all nonowner employees in any company-sponsored pension plans and make equivalent contributions to their accounts. Unfortunately, this requirement has the effect of reducing the allowable contributions that the owner of a proprietorship or partnership can make on his or her own behalf.

For self-employed individuals, contributions to a qualified pension plan are based upon the net earnings of their business. The net earnings consist of the company's gross income less deductions for business expenses, salaries paid to nonowner employees, the employer's 50 percent of the Social Security tax, andsignificantlythe employer's contribution to retirement plans on behalf of employees. Therefore, rather than receiving pre-tax contributions to the retirement account as a percentage of gross salary, like nonowner employees, the small business owner receives contributions as a smaller percentage of net earnings. Employing other people thus detracts from the owner's ability to build up a sizeable before-tax retirement account of his or her own. For this reason, some experts recommend that the owners of proprietorships and partnerships who sponsor pension plans for their employees supplement their own retirement funds through a personal after-tax savings plan.

PERSONAL PENSION PLANS FOR INDIVIDUALS

For self-employed persons and small business owners, the tax laws that limit the amount of annual contributions individuals can make to qualified retirement plans, may make these plans insufficient as a sole vehicle through which to save for retirement. A non-qualified plan can be used to supplement retirement savings plans for business owners. Broadly defined, a nonqualified deferred compensation plan (NDCP) is a contractual agreement in which a participant agrees to be paid in a future year for services rendered this year. Deferred compensation payments generally commence upon termination of employment (e.g., retirement) or pre-retirement death or disability.

There are two broad categories of nonqualified deferred compensation plans: elective and non-elective. In an elective NDCP an employee or business owner chooses to receive less current salary and bonus compensation than he or she would otherwise receive postponing the receipt of that compensation until a future tax year. Non-elective NDCPs are plans in which the employer funds the benefit and does not reduce current compensation in order to fund future payments. Such plans are, in essence, post-termination salary continuation plans.

Establishing such a plan can be done in a number of ways. A variable life insurance policy is one way to structure the plan. A company purchases a variable life insurance policy for each participant and paying premiums for the policy annually. The amount paid in is invested and allowed to grow tax-free. Both the premiums paid and the investment earnings can be accessed to provide the individual with an annual income upon retirement. The only catch is that, unlike qualified retirement plans, the annual payments made on a personal pension plan are not tax-deductible.

Although other types of insurance policiessuch as whole life or universal lifecan also be used for retirement savings, they tend to be less flexible in terms of investment choices. In contrast, most variable life insurance providers allow individuals to select from a variety of investment options and transfer funds from one account to another without penalty. Many policies also allow individuals to vary the amount of their annual contribution or even skip making a contribution in years when cash is tight. Another worthwhile provision in some policies pays the premium if the individual should become disabled. In addition, most policies have more liberal early withdrawal and loan provisions than qualified retirement plans. The size of the annual contributions allowed depends upon the size of the insurance policy purchased. The bigger the insurance policy, the higher the premiums will be, and the higher the contributions. The IRS does set a maximum annual contribution level for each size policy, based on the beneficiary's age, gender, and other factors.

Upon reaching retirement age, an individual can begin to use the personal pension plan as a source of annual income. Withdrawalswhich are not subject to income or Social Security taxesfirst come from the premiums paid and earnings accumulated. After the total withdrawn equals the total contributed, however, the individual can continue to draw income in the form of a loan against the plan's cash value. This amount is repaid upon the individual's death out of the death benefit of the insurance.

see also Employee Benefits; Employee Retirement Income Security Act; 401(k) Plans; Keogh Plan; Nonqualified Deferred Compensation Plans; Retirement Planning

BIBLIOGRAPHY

Altieri, Mark P. "Nonqualified Deferred Compensation Plans." The CPA Journal. February 2005.

"Bad News for Employers Contemplating Cash-Balance Pension Plans." The Kiplinger Letter. 21 April 2006.

MacDonald, John. "'Traditional' Pension Assets Lost Dominance a Decade Ago, IRAs and 401(k)s Have Long Been Dominant." Fast Facts from EBRI. Employee Benefit Research Institute, 3 February 2006.

Reeves, Scott. "A Small Business Retirement Plan." Forbes.com . 12 September 2005.

"Retirement Planning: Squeeze on Retirement Savings." The Practical Accountant. February 2006.

Sifleet, Jean D. Beyond 401(k)s for Small Business Owners. John Wiley & Sons, 2003.

U.S. Department of Labor. Employee Benefits Security Administration. "Easy Retirement Solutions for Small Business." Available from http://www.dol.gov/ebsa/publications/easy_retirement_solutions.html. Retrieved on 12 April 2006.

U.S. Internal Revenue Service. "401(k) Resource GuidePlan ParticipantsLimitations on Elective Deferrals." Available from http://www.irs.gov/retirement/participant/article/0,id=151786,00.html. Retrieved on 9 March 2006.

U.S. Small Business Administration. SBA Office of Advocacy. Popkin, Joel. "Cost of Employee Benefits in Small and Large Businesses." August 2005.

                                Hillstrom, Northern Lights

                               updated by Magee, ECDI

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Pension Plans

PENSION PLANS

PENSION PLANS are used to fund retirement programs and may involve employers, the government, or both. Created to provide payments to workers or their families upon retirement, they also provide benefits in the event of death or disability. Self-employed persons generally have individual arrangements. Funding for pension programs may include employee contributions supplemented by matching funds from the employer, deferred profit sharing programs, stock purchase programs, or employee savings. Social security, a federal pension program established in 1935, may supplement employer and private pension plans.

Different pension plans exist for federal, state, and local government employees; military personnel; and public school teachers. An individual may enhance a pension plan through individual retirement accounts (IRAs) or 401(k) programs or through programs such as the Teachers Insurance and Annuity Association College Retirement Equities Fund (TIAA-CREF). Tax deferments allow retirement contributions to be funded with tax-free dollars, while retirement savings accounts may accumulate interest while delaying tax payments on their growth until funds are withdrawn, promising a larger income at retirement.

Military Pensions

Congress established the General Law pension system in 1862 to provide payments for veterans who had been disabled as a direct result of military service. Payments were determined by the degree of disability as determined by a local medical board. This was usually based on the ability to perform manual labor.

The federal government created a more general pension plan for Union Army veterans in 1890. Although originally designed to assist disabled veterans, it included the beginnings of a collective disability and old-age program for Union veterans of the Civil War. This law provided a pension regardless of whether the condition was caused by military service. Although the law did not recognize old age as a basis for receiving a pension, the Pension Bureau instructed doctors to authorize pensions for applicants over age sixty-five, unless the individual appeared exceptionally vigorous. One effect seems to have been the encouragement for more men to retire, so that, by the early twentieth century, retired Union Army veterans outnumbered nonveteran retirees.

By 1900, this program grew to the extent that it took up nearly 30 percent of the federal budget. Housed in its own building, the pension program provided benefits to veterans as well as their widows and dependant children. Almost a third of those between fifty-five and fifty-nine received pension payments, as did about 20 percent of those between sixty and sixty-five; 15 percent of those aged sixty-five to sixty-nine; and a bit less than ten percent of those seventy or older. The pension program seems to have contributed to these veterans' political power, and they made benefits an important issue in the early twentieth century. Not unlike today's senior citizens, they were well organized and lobbied Congress effectively, despite their small numbers. They tended to support high tariffs and campaigned to have the additional funds directed into the pension fund.

Private Pensions

In the final quarter of the nineteenth century, private pension plans were developed because of employees' growing desire for status, security, and higher salaries combined with management's needs for loyal, dedicated, and productive employees. Partly an expression of welfare capitalism, these early plans were also the result of a belief that benevolent and generous programs, such as pensions, could help create the durable, industrious, and devoted workforce management wanted.

The initial private pension plans were developed by the railroads. The American Express Company established the first one in 1875, followed five years later by the Baltimore and Ohio Railroad (B&O). In 1900, the Pennsylvania Railroad offered its employees a plan. Although these plans arose primarily from a desire to retain employees, they also reflected growing concerns about unions, the welfare of workers, and a wish to display corporate benevolence toward employees. The pension plan created by the B&O had a provision for old-age protection that would serve as an example for future plans, as it allowed employees to retire at sixty-five or, if they were disabled, at age sixty. Another interesting aspect of the plan was its treatment of old age as a disabling illness, providing retirees the same benefits as those who had suffered long-term disabilities. A unique feature of the Pennsylvania Railroad plan was the establishment of corporate control over the plan's administration, setting a precedent for the evolution of modern personnel administration. Other railroads that adopted pension plans soon copied this feature.

Despite the pioneering efforts of the railroads, few other corporations offered any sort of pension plan by 1900. Undoubtedly, the long-term commitment required by such plans discouraged many companies from offering them. Profit sharing plans were more popular, since the entire workforce could benefit from them, and occasionally, a firm might tie a pension program to its profit sharing plan.

Government Pensions

Although the federal government had established age as a basis for making pensions available to veterans of the Union Army in 1890, it would be another thirty years before a retirement and pension program was established for government employees. As with the private sector, government's interest in pension plans was related to efficiency and security. Generally speaking, civil service employees tended to hold on to their jobs because of the security they offered, but the late nineteenth century saw aging with in the bureaucracy become a problem. Many civil service workers were Union Army veterans, who were unlikely to be removed from their jobs for political reasons. These men stayed on in their positions, contributing to an aging and increasingly inefficient bureaucracy. By the beginning of the twentieth century, there was a growing interest in a retirement and pension policy for civil service employees, leading to the creation of the United States Civil Service Retirement Association (USCSRA) in 1900. This association spent several years collecting data and investigating methods by which a federal retirement policy could be established and funded.

These efforts drew the support of the administrations of Theodore Roosevelt and William Howard Taft. Roosevelt established the Keep Commission to investigate the question. The commission's final report offered statistical evidence that, as workers age, they become less efficient.

Taft furthered the movement with the formation of the Commission on Economy and Efficiency, which recommended a plan for civil service retirement. Taft endorsed the plan, and its call for compulsory retirement at age seventy and the creation of an employee financed pension fund. The USCSRA supported this recommendation, but action was prevented by a new group, the National Association of Civil Service Employees (NACSE), which favored a government funded program.

The debate continued into the Wilson Administration. Political concerns led Woodrow Wilson to with hold support for the issue until 1918, when he responded favorably to a proposed retirement bill. Southern Democratic opposition, however, helped delay passage of the bill until 1920. Civil service employees were now able to retire at age seventy, while others could retire as early as age sixty-two. Funding came from a small salary deduction. An amended law passed in 1926 increased the benefit package, after it became apparent that the original benefits provided in the 1920 law were inadequate.

The problems of unemployment and poverty among the elderly during the Great Depression led to the enactment of the Social Security Act. From the beginning of the New Deal, President Franklin D. Roosevelt's administration wanted a federally sponsored program that would furnish social insurance for the elderly and unemployed. The bill, passed in 1935, would develop into one of the most farreaching and complex laws Congress had ever enacted. The object of social security was to create

a system of insurance rather than welfare. While the law was originally designed to target a small group of people truly in need and unable to support themselves, the program has expanded to assist the elderly, the disabled, and the survivors of those whose payroll deductions contributed to the federal funds that are paid out. The key feature of the program linked benefits to those payroll deductions. This served to create a sense among contributors that they had a vested interest in the program and the right to collect benefits and pensions as promised under the law.

Current Pension Trends

Even so, the present concept of retirement did not emerge until the late 1960s or early 1970s. Prior to this, the Social Security Act had been amended several times to allow more and more workers into the system, but no significant improvement in retirement benefits had taken place, and the concept of social security as supplemental retirement income had not been challenged. But, continued high poverty rates among senior citizens added credibility to their complaints that the benefits were no longer sufficient. Between 1965 and 1975, benefit levels were increased five times, and in 1972, they were indexed in relation to the Consumer Price Index.

A reorganization of private pension plans also occurred in the 1970s. Noteworthy was the passage of the Employee Retirement Income Security Act (ERISA), which legalized vesting plans while giving workers some protection against the loss of benefits. Inflation also led private plans to provide automatic benefit increases to offset the rising cost of living. Additionally, because of increased participation, private plans began to encourage early retirement and offered greater benefits to those who took this option, instead of the reduced benefits that had been common before.

By 2000, there were growing concerns about the future of Social Security, primarily because of the program's expansion during the last decades of the twentieth century. By 2030, the number of persons eligible to receive benefits may double, while the number of those paying into the system will increase by only 20 percent. This has led to talk of privatizing social security or implementing reforms such as taxing all wage earners or allowing a semiprivate government agency to oversee and manage the program's investments to assure adequate funding for future beneficiaries. Another suggestion is to raise the retirement age to sixty-seven or seventy. Similarly, owing to an increasing number of major bankruptcies, by the early 2000s, the private sector was increasingly concerned about the well-being of corporate pension programs. In addition to this, the government was experiencing increasing pressure to take more significant steps to protect private pension plans as well as to assure the continued functioning of the social security system.

BIBLIOGRAPHY

Costa, Dora L. The Evolution of Retirement: An American Economic History, 1880–1900. Chicago: University of Chicago Press, 1998.

Graebner, William. A History of Retirement: The Meaning and Function of an American Institution, 1885–1978. New Haven, Conn.: Yale University Press, 1980.

Haber, Carole, and Brian Gratton. Old Age and the Search for Security: An American Social History. Bloomington: Indiana University Press, 1993.

Sass, Steven A. The Promise of Private Pensions: The First Hundred Years. Cambridge, Mass.: Harvard University Press, 1997.

Schieber, Sylvester J. The Real Deal: The History and Future of Social Security. New Haven, Conn.: Yale University Press, 1999.

GregoryMoore

See alsoRetirement .

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Pension

PENSION

A benefit, usually money, paid regularly to retired employees or their survivors by private businesses and federal, state, and local governments. Employers are not required to establish pension benefits but do so to attract qualified employees.

The first pension plan in the United States was created by the American Express Company in 1875. A few labor unions and state and local governments began to offer pension plans shortly thereafter, and by 1935 governments in half the states and many businesses were offering pension plans. In 1997 about half of all U.S. workers had pension plans.

Employers establish pension plans by paying a certain amount of money into a pension fund. The money paid into this fund is not taxed to the employer, and it is not taxed to the employee until the employee retires and begins to collect pension benefits. The employer gives control of the pension fund to a trustee, who may invest the money in stocks and bonds and other financial endeavors to increase the fund. Some pension plans require the employee to make a small, periodic contribution to the fund.

The amount of pension that a pensioner receives depends on the type of pension plan. Pension plans generally can be divided into two categories: defined benefit plans and defined contribution plans. A defined benefit plan provides a set amount of benefits to a pensioner. Under a defined contribution plan, the employer places a certain amount of money in the employee's name into the pension fund and makes no promises concerning the level of pension benefits that the employee will receive upon retirement. Employers using defined contribution plans contribute an amount into the pension fund based on the employee's salary. As a result, higher-paid employees receive larger pensions than do lower-paid employees.

The same is true for defined benefit plans: employers tend to offer larger pensions to higher-paid employees. The difference between the two types of plans is that in a defined contribution plan, the employee assumes the risk of investment failure because the funds are not insured by the federal government. Under most defined benefit plans, the employer assumes the risk that pension funds will not be available. Employees assume little risk because most funds are insured by the federal government to a certain limit.

The most important issue to pensioners is the potential loss of their pension benefits. This issue is of less concern when the government is the employer because governments have access to additional funds. Such is not the case with private businesses. Before the 1970s employees did not always receive their promised pension benefits. An employee could lose his or her pension if the employer went out of business and employers could fire long-time employees just before their pensions vested to avoid paying pensions. Citing the profound effect that pension plans have on interstate commerce and the economic security of the country, Congress enacted the employee retirement income security act of 1974 (ERISA) (29 U.S.C.A. § 1001 et seq.) to regulate pension plans created by private businesses other than religious organizations.

ERISA is a complex collection of federal statutes that take precedence over most state pension laws. The act encourages the creation of pension funds by making employer contributions to pension funds tax free. ERISA also is designed to ensure that pension funds promised to an employee will be available. It establishes rules for the vesting of pensions based on the employee's age and length of employment. Under the law an employer using a pension plan that is not funded by the employees may choose one of several methods for vesting of pensions. An employer may allow all pension benefits to become nonforfeitable once the employee has completed five years of employment. In the alternative, an employee may be guaranteed a percentage of pension funds according to length of service, with the percentage increasing as the length of service increases. An employee with three years of service is guaranteed 20 percent of the derived benefit from the employer contributions to the pension plan. After four years the employee has a right to 40 percent of the benefits; after five years the percentage is 60; after six years the percentage is 80; and an employee who completes seven years of service becomes fully vested. An employee is always entitled to the amount of money she or he has contributed to a pension fund.

Under ERISA, the fiduciaries who control the pension funds must meet certain reporting requirements. The act restricts the kinds of investments that trustees can make using pension funds. It mandates that employers make annual contributions to pension funds, and it devises formulas for setting minimum contribution levels. These formulas are created in actuarial tables based on such factors as the turnover of the participants in the plan, the life expectancy of the participants, the amount of money in pensions promised to employees, and the success of the pension fund's investments. The act authorizes criminal penalties for violators of pension laws and provides civil law remedies to victims of pension misuse or abuse.

An employer who is delinquent in making contributions to the pension fund may have to pay penalties. ERISA requires employers to report to pension holders significant facts regarding the pension fund, such as a summary describing in clear language how the plan works, what benefits it provides, and how such benefits can be received. The employer also must report annually to each employee the amount of benefits that have accrued and have vested, and the earliest date on which the employee's pension will vest as of the date of the report.

ERISA created the Pension Benefit Guaranty Corporation (PBGC) to ensure the payment of certain benefits of pension plans. PBGC is a government corporation within the U.S. department of labor that is governed by the secretaries of labor, commerce, and treasury, and funded by premiums collected from pension plans. If an employer is unable to meet pension obligations, the PBGC may make the payments for the employer. PBGC covers only defined benefit pension plans, with the exception of church-based pension plans. Religious organizations are excepted because courts and legislatures consider church-based pensions to be an ecclesiastical matter beyond the authority of the law.

An employee cannot lose pension benefits by retiring early. Under defined benefit plans, the employee may begin to receive pension benefits upon reaching the normal retirement age of 65 years. If an employee retires before reaching age 59.5 and begins drawing from his pension, his pension payments are taxed at a 10 percent annual rate in addition to any regular income taxes. This excise tax is levied because pension funds are designed to promote security after retirement.

The excise tax does not apply to a pension given to a surviving spouse when the employee dies before the pension is fully paid, even if the employee dies before reaching age 59.5. Employees who become disabled before age 59.5 do not have to pay the excise tax, nor do persons who specifically choose to receive the pension payments as an annuity or periodically. In addition, the excise tax does not apply to pensions of employees over the age of 55 years who have separated from their employer, certain pensions paid for medical expenses, and pension payments made pursuant to certain divorce-related court orders.

ERISA does not regulate pension plans with 25 or fewer participants or plans that are solely for business partners or a sole proprietor. Employees of businesses not covered by ERISA may look to state statutes governing pensions that contain regulations and requirements similar to those in ERISA.

Congress refined the tax consequences of pensions in January 1996. Under the Pension Source Act (Pub. L. No. 104-95, amending title 4 of U.S.C.A. § 114), a state that imposes income taxes may not tax pension benefits earned in the state if the pensioner is living in a state that does not impose personal income tax.

Pensions are an attractive component of employee compensation packages. The money that the employer withholds during the working life of the employee is not taxed, and the money in a pension fund can be increased through investments. When the pensioned employee retires, she or he can ask for the entire pension in one lump sum or can take the pension as an annuity, which is a series of payments that lasts for a specified period of time. If the retiree lives long enough, she or he will receive more money than the employer originally withheld. If the pensioner dies before the pension is fully paid, her or his surviving spouse or another designated survivor may receive the remainder of the pension. A retiree who has worked at several companies may receive several pensions.

Individuals who are self-employed have their own pension options. A self-employed worker may establish a keogh plan, which is a type of retirement plan for self-employed workers that is comparable to a pension plan. Under a Keogh plan, the worker makes tax-free payments into a fund and receives larger payments upon retirement.

An individual retirement account (IRA) is another way to provide for security in retirement. An IRA is a personal retirement account that workers may establish in addition to, or instead of, a pension. Employers may establish similar personal retirement accounts for their employees. These accounts are called 401K plans, after the section of the internal revenue code that authorizes them. Under a 401K plan, a worker deposits a portion of his or her gross earnings into the account to avoid income tax on that portion of the earnings. The earnings are subject to taxation when the retiring worker receives them. If the worker is in a lower tax bracket by retirement, he or she will end up paying less tax on the portion of the earnings in the IRA.

Pension benefits are distinct from other retirement benefits such as social security and medical assistance. A pension may reduce slightly the amount of Social Security benefits that a government employee receives.

further readings

Abramson, Stephen. 2003. Financial Professional's Guide to Qualified Retirement Plans: Planning, Implementation, Operation, and Compliance. 2d ed. New York: Aspen.

Driggers, Martin S., Jr. 1996. "Minister's Pension Contract Is an 'Ecclesiastical Matter' Not Reviewable by the Court." South Carolina Law Review 48 (autumn).

Gregory, David. 1987. "The Scope of ERISA Preemption of State Law: A Study in Effective Federalism." University of Pittsburgh Law Review 48 (winter).

Lantry, Terry L. 1996. "Retirees' Pensions Insulated from State Income Tax." Taxation for Lawyers 25 (November-December).

Lewis, Barbara, and Dan Otto. 2002. "Sunset Cruise; Take Advantage of New Laws to Make Your Pensions More Valuable." Los Angeles Daily Journal (January 15).

Peterson, Pete. 1996. Will America Grow Up Before It Grows Old?: How the Coming Social Security Crisis Threatens You, Your Family, and Your Country. New York: David McKay.

Snyder, Michael B. 1999. Qualified Plan Investments: Fiduciary Responsibilities and Strategies. St. Paul, Minn.: West Group.

cross-references

Social Security.

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"Pension." West's Encyclopedia of American Law. 2005. Encyclopedia.com. 27 Sep. 2016 <http://www.encyclopedia.com>.

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pension

pension, periodic payments to one who has retired from work because of age or disability. Pensions, originally thought of as charity, are now viewed as an essential part of the social responsibility of employers or of the state. In the Roman Empire there was a well-established pension system to care for soldiers who were disabled or had grown old. The French government early in the 19th cent. and then the British (1834) made provision for superannuated public servants.

In the United States pensions in various forms have been given to veterans of all wars since the Revolution; military pensions are now covered by the Servicemen's and Veterans' Survivor Benefits Act (1957). Retired servicemen and servicewomen receive, after 20 years of service, 50% of their base pay at time of retirement, with automatic increases as indicated by the Consumer Price Index. Civil-service pensions were developed later in the United States than in W Europe. Old-age pension plans were drawn up by cities for certain groups of public employees—firefighters, police officers, and teachers—which provided for compulsory contributions from the employee. Pensions for federal employees were authorized in 1920.

The idea of extending such protection to all citizens also appeared earlier in Europe (notably in Germany) than in the United States, where it was a 20th-century development (see social security). Many corporations and groups (such as labor unions, professional associations, and colleges) had made provision for pensions before the social security legislation was passed in 1935, and many groups now have pension plans that supplement social security.

Until the 1940s, pension plans in private industry were set up primarily on the initiative of the employer. As workers gained the right to submit pension plans to collective bargaining, the number of people covered in the United States by pensions grew from 4.1 million in 1940 to 65.6 million in 1999, about 44% of all workers. With more than $6.9 trillion in assets in 1997 (up from only $2.4 billion in 1940), these plans exert a major impact on the economy because the money is invested in stocks, bonds, and real estate. At the same time, the financial health of pension plans can be adversely affected by drops in the value of their investments, as happened after the late 1990s stock market bubble burst, or the bankruptcy of the employer. The Employee Retirement Income Security Act (1974) established regulations to protect pensions from mismanagement and created a federal agency, the Pension Benefit Guaranty Corporation, to insure them. The Pension Protection Act (2006) was intended to strengthen pension plans.

During the 1990s there was a shift in the type of pension plan that employees were covered by. The number of people covered by defined benefit pension plans leveled off as companies attempted to reduce costs by forcing employees to contribute to their own plans, such as 401(k) plans (defined contribution plans), or by terminating the plans. Under a defined-contribution plan, contributions are made to an account for an individual employee, but no specific income is guaranteed at retirement. In a 401(k) plan, the most common type of defined contribution plan, income that would have been paid to the employee is deposited pretax in an account and invested; it may be matched to some degree by a contribution from the employer. Such plans also differ from traditional defined benefit plans in that the contributions are voluntary, and as a result employees are only covered if they choose to contribute to an account. Under such plans employees also may be allowed some degree of control over how the contributions are invested.

See R. Lynn, The Pension Crisis (1983); J. Matthews, Social Security, Medicare and Pensions (1988); R. L. Deaton, The Political Economy of Pensions (1989).

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"pension." The Columbia Encyclopedia, 6th ed.. 2016. Encyclopedia.com. 27 Sep. 2016 <http://www.encyclopedia.com>.

"pension." The Columbia Encyclopedia, 6th ed.. 2016. Encyclopedia.com. (September 27, 2016). http://www.encyclopedia.com/doc/1E1-pension.html

"pension." The Columbia Encyclopedia, 6th ed.. 2016. Retrieved September 27, 2016 from Encyclopedia.com: http://www.encyclopedia.com/doc/1E1-pension.html

pension

pen·sion1 / ˈpenshən/ • n. a regular payment made during a person's retirement from an investment fund to which that person or their employer has contributed during their working life. ∎  a regular payment made by the government to people of or above the official retirement age and to some widows and disabled people. ∎ chiefly hist. a regular payment made to a royal favorite or to an artist or scholar to enable them to carry on work that is of public interest or value. • v. [tr.] (pension someone off) dismiss someone from employment, typically because of age or ill health, and pay them a pension: he was pensioned off from the army at the end of the war. DERIVATIVES: pen·sion·less adj. pen·sion2 / pänsēˈōn/ • n. a boardinghouse in France and other European countries, providing full or partial board at a fixed rate.

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"pension." The Oxford Pocket Dictionary of Current English. 2009. Encyclopedia.com. 27 Sep. 2016 <http://www.encyclopedia.com>.

"pension." The Oxford Pocket Dictionary of Current English. 2009. Encyclopedia.com. (September 27, 2016). http://www.encyclopedia.com/doc/1O999-pension.html

"pension." The Oxford Pocket Dictionary of Current English. 2009. Retrieved September 27, 2016 from Encyclopedia.com: http://www.encyclopedia.com/doc/1O999-pension.html

pension

pension fixed or regular payment, spec. out of the revenues of a benefice XIV; payment made by members of a society (as an inn of court) for general expenses XV; annuity for past services XVI; †payment for board and lodging or education; boarding-house XVII. — (O)F. — L. pēnsiō, -ōn- payment, rent, f. pēns-, pp. stem of pendere weigh, pay; see PENDENT, -ION.
So pensioner (-ER2) one in receipt of a pension; one who makes a stated periodical payment, spec. commoner at Cambridge Univ. XV. — AN. pensionner, OF. pensionnier — medL. pensiōnārius (whence pensionary XVI).

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T. F. HOAD. "pension." The Concise Oxford Dictionary of English Etymology. 1996. Encyclopedia.com. 27 Sep. 2016 <http://www.encyclopedia.com>.

T. F. HOAD. "pension." The Concise Oxford Dictionary of English Etymology. 1996. Encyclopedia.com. (September 27, 2016). http://www.encyclopedia.com/doc/1O27-pension.html

T. F. HOAD. "pension." The Concise Oxford Dictionary of English Etymology. 1996. Retrieved September 27, 2016 from Encyclopedia.com: http://www.encyclopedia.com/doc/1O27-pension.html

pension

pension Money paid regularly to a retired person. Pension plans may be funded by the government, such as social security, or by companies; both plans involve regular financial contributions by the individual for a qualifying period. See also national insurance (NI)

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"pension." World Encyclopedia. 2005. Encyclopedia.com. 27 Sep. 2016 <http://www.encyclopedia.com>.

"pension." World Encyclopedia. 2005. Encyclopedia.com. (September 27, 2016). http://www.encyclopedia.com/doc/1O142-pension.html

"pension." World Encyclopedia. 2005. Retrieved September 27, 2016 from Encyclopedia.com: http://www.encyclopedia.com/doc/1O142-pension.html

pension

pension •par avion • Messiaen •chignon, filet mignon •Avignon • Sauvignon • Semillon •Roussillon • sabayon •demi-pension, pension •bouillon, court-bouillon •K-meson • soi-disant • blouson •ashen, fashion, passion, ration •abstraction, action, attraction, benefaction, compaction, contraction, counteraction, diffraction, enaction, exaction, extraction, faction, fraction, interaction, liquefaction, malefaction, petrifaction, proaction, protraction, putrefaction, redaction, retroaction, satisfaction, stupefaction, subtraction, traction, transaction, tumefaction, vitrifaction •expansion, mansion, scansion, stanchion •sanction •caption, contraption •harshen, Martian •cession, discretion, freshen, session •abjection, affection, circumspection, collection, complexion, confection, connection, convection, correction, defection, deflection, dejection, detection, direction, ejection, election, erection, genuflection, imperfection, infection, inflection, injection, inspection, insurrection, interconnection, interjection, intersection, introspection, lection, misdirection, objection, perfection, predilection, projection, protection, refection, reflection, rejection, resurrection, retrospection, section, selection, subjection, transection, vivisection •exemption, pre-emption, redemption •abstention, apprehension, ascension, attention, circumvention, comprehension, condescension, contention, contravention, convention, declension, detention, dimension, dissension, extension, gentian, hypertension, hypotension, intention, intervention, invention, mention, misapprehension, obtention, pension, prehension, prevention, recension, retention, subvention, supervention, suspension, tension •conception, contraception, deception, exception, inception, interception, misconception, perception, reception •Übermenschen • subsection •ablation, aeration, agnation, Alsatian, Amerasian, Asian, aviation, cetacean, citation, conation, creation, Croatian, crustacean, curation, Dalmatian, delation, dilation, donation, duration, elation, fixation, Galatian, gyration, Haitian, halation, Horatian, ideation, illation, lavation, legation, libation, location, lunation, mutation, natation, nation, negation, notation, nutation, oblation, oration, ovation, potation, relation, rogation, rotation, Sarmatian, sedation, Serbo-Croatian, station, taxation, Thracian, vacation, vexation, vocation, zonation •accretion, Capetian, completion, concretion, deletion, depletion, Diocletian, excretion, Grecian, Helvetian, repletion, Rhodesian, secretion, suppletion, Tahitian, venetian •academician, addition, aesthetician (US esthetician), ambition, audition, beautician, clinician, coition, cosmetician, diagnostician, dialectician, dietitian, Domitian, edition, electrician, emission, fission, fruition, Hermitian, ignition, linguistician, logician, magician, mathematician, Mauritian, mechanician, metaphysician, mission, monition, mortician, munition, musician, obstetrician, omission, optician, paediatrician (US pediatrician), patrician, petition, Phoenician, physician, politician, position, rhetorician, sedition, statistician, suspicion, tactician, technician, theoretician, Titian, tuition, volition •addiction, affliction, benediction, constriction, conviction, crucifixion, depiction, dereliction, diction, eviction, fiction, friction, infliction, interdiction, jurisdiction, malediction, restriction, transfixion, valediction •distinction, extinction, intinction •ascription, circumscription, conscription, decryption, description, Egyptian, encryption, inscription, misdescription, prescription, subscription, superscription, transcription •proscription •concoction, decoction •adoption, option •abortion, apportion, caution, contortion, distortion, extortion, portion, proportion, retortion, torsion •auction •absorption, sorption •commotion, devotion, emotion, groschen, Laotian, locomotion, lotion, motion, notion, Nova Scotian, ocean, potion, promotion •ablution, absolution, allocution, attribution, circumlocution, circumvolution, Confucian, constitution, contribution, convolution, counter-revolution, destitution, dilution, diminution, distribution, electrocution, elocution, evolution, execution, institution, interlocution, irresolution, Lilliputian, locution, perlocution, persecution, pollution, prosecution, prostitution, restitution, retribution, Rosicrucian, solution, substitution, volution •cushion • resumption • München •pincushion •Belorussian, Prussian, Russian •abduction, conduction, construction, deduction, destruction, eduction, effluxion, induction, instruction, introduction, misconstruction, obstruction, production, reduction, ruction, seduction, suction, underproduction •avulsion, compulsion, convulsion, emulsion, expulsion, impulsion, propulsion, repulsion, revulsion •assumption, consumption, gumption, presumption •luncheon, scuncheon, truncheon •compunction, conjunction, dysfunction, expunction, function, junction, malfunction, multifunction, unction •abruption, corruption, disruption, eruption, interruption •T-junction • liposuction •animadversion, aspersion, assertion, aversion, Cistercian, coercion, conversion, desertion, disconcertion, dispersion, diversion, emersion, excursion, exertion, extroversion, immersion, incursion, insertion, interspersion, introversion, Persian, perversion, submersion, subversion, tertian, version •excerption

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"pension." Oxford Dictionary of Rhymes. 2007. Encyclopedia.com. 27 Sep. 2016 <http://www.encyclopedia.com>.

"pension." Oxford Dictionary of Rhymes. 2007. Encyclopedia.com. (September 27, 2016). http://www.encyclopedia.com/doc/1O233-pension.html

"pension." Oxford Dictionary of Rhymes. 2007. Retrieved September 27, 2016 from Encyclopedia.com: http://www.encyclopedia.com/doc/1O233-pension.html

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