Pension Plan

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Definition of 'Pension Plan'

A pension plan is a long-term investment vehicle that provides a regular income to retirees. It is typically funded by employer contributions and employee contributions, and the money is invested in a variety of assets, such as stocks, bonds, and real estate.

There are two main types of pension plans: defined benefit plans and defined contribution plans. In a defined benefit plan, the employer promises to pay a certain amount of money to the employee each year after retirement. The amount of the benefit is based on factors such as the employee's salary, years of service, and age at retirement.

In a defined contribution plan, the employer makes a contribution to the employee's account each year, and the employee is responsible for investing the money. The amount of money the employee receives in retirement depends on the investment performance of the account.

Pension plans can be a valuable source of retirement income, but it is important to understand the different types of plans and how they work before you decide which one is right for you.

Here are some of the key advantages of having a pension plan:

* Pension plans can provide a secure source of income in retirement.
* Pension plans can help you save for retirement on a tax-advantaged basis.
* Pension plans can help you diversify your investment portfolio.

Here are some of the key disadvantages of having a pension plan:

* Pension plans can be expensive to participate in.
* Pension plans can be subject to market risk.
* Pension plans can be subject to changes in government regulations.

If you are considering a pension plan, it is important to weigh the advantages and disadvantages carefully before making a decision.

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