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What exactly are “corporate retirement plans”?  They are plans in which allow the employees of a corporation to have funds available for retirement after meeting the minimum, agreed upon terms of employment with a certain corporation.  Formerly, these were funds paid solely by the employer; however, recent changes have required the employer to also make a contribution to their retirement fund.  When the employee retires from the corporation the funds deposited will be divided into equal monthly amounts in which the employee receives on a monthly basis throughout their retirement.

The most common retirement plans are called “defined benefit” and “defined contribution plans”.  A defined benefit plan uses a formula to calculate the employees retirement benefit according to how long they were employed and what their salary was, making it the employer’s sole responsibility to fund this type of retirement plan.  With the defined contribution plan, the amount of an employee’s retirement benefit depends on the success of the plan, with no guaranteed amount of monthly benefit.   

Because the promise of funding a retiree’s living needs until their death can put a strain on the corporation financially; corporations are converting their pension plans from defined benefit to the defined contribution plan for their employee’s corporate retirement plan.

Then there is the “employee contribution plan”, in which the employee elects to have a set amount of their earnings deposited into their retirement account—which is in the employee’s name; however, annual contributions are limited by the federal government’s regulations.  These types of retirement plans do have a tax advantage because taxes can be deferred and the employee has the option of using “pre-tax” dollars to be deposited into their retirement account.  Employee’s may match the employee’s contribution, however, the employee has no complete ownership of this type of retirement plan until they have become fully vested after a certain number of employment years.  

Another type of employee contribution pension plan is the 401(k). With this type of plan the employee contributes to the plan and the payout is based on this amount plus whether the employer matches contributions to the plan, and how the employee chooses to invest this money as well as how those investments pay out over time.  Any risk of this type of plan goes from the employer to the employee.

The employee may also have the option of “past service” to increase their retirement allowance.  This is an option to purchase past service credit (prior to employee’s being a member of the pension plan or the plan’s actual inception date) in the form of cash or “a qualified retirement roll-over” which would in turn increase the amount of actual years the employee has paid into the pension plan, increasing their benefit plan.

It is always best to consult with a qualified financial advisor before making the choice to roll-over any qualified assets into a contribution plan for retirement purposes.  However you decide to invest in your retirement,  a financial advisor can assist you in determining which corporate retirement plan is right for you.  

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