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Pension Programs

Pension benefits are a critical component of income security for retired workers. In the broadest terms, a pension program is any program that is established by means of which a worker earns a benefit that will provide income during retirement. Favorable tax treatment dating back to 1921 encouraged the development of the U.S. pension system. Most pensions take the form of an annuity and generate periodic payments to the recipient. They can be set up by the individual's employer, trade unions, or the government. There are two main types of pension plans: defined benefit (DB) and defined contribution (DC).

Defined-Benefit Plans

A DB plan provides benefits based on a formula that typically multiplies years of service, final average pay, a pension rate (e.g., 1.5% for ...

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