Corporate Pension Plan - 401k Retirement Glossary

A Corporate Pension Plan is a formal paper agreement between a corporation and its employees outlining the details of the retirement plans available for all the employees. It states the amount of funding that both the employees and the employer will contribute towards the 401k Retirement Plans. Some employees may choose to go with the 403b plan if they are eligible. In the past, employers used to solely contribute towards the 401k retirement plans based on the performance of employees, length of employment and type of position held.

There are usually 2 types of Corporate Pension Plans:

1) Defined Benefit Plans

The amount of funding towards a 401k retirement plan is calculate based on a pre-set formula which is set on things like length of employment and gross wage. With Defined Benefit Plans, it is the employer who funds the retirement plans and therefore his responsibility to have sufficient cash to do so.

2) Defined Contribution Plans

Defined contribution plans are based on the investment returns that are made on 401k retirement plans. Therefore, there is no guarantee that employees will receive a certain payment upon retirement.

In the last couple of decades, corporations have been moving from Defined Benefit Plans (where it is their responsibility to come up with the cash) to Defined Contribution Plans (where it is not their responsibility).