LAW 3102 Study Guide - Final Guide: Pension
Defined Benefit: Employer promises employee annuity payments for the rest of their
life after they retire
Example
●Employee works 25 years
●Multiply that by 2% * the highest salary you ever had at company
(100k)=50,000
●This employees’ annuity payment would be 50,000 every year after employee
retires
What if company goes bankrupt?
Some protection is provided by Govn’t
Underfunded pension plan: employer hasn't set aside enough money to make
payments to employees
(all risk on employer)
Defined contribution: promising to make contributions to employees plan
ex) 401k
Employee makes contributions to his/her own plan
Example
Employee contributes 2,000 to plan( Invested into mutual funds, etc)
50% match by employer up until the first 3,000 annually (firm’s limit)
So employer puts 1000 into employees plan=3000 total in employees plan
