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What Is a Corporate Pension Plan?

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  • Written By: Esther Ejim
  • Edited By: Kaci Lane Hindman
  • Last Modified Date: 23 November 2016
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A corporate pension plan refers to a process whereby an employee and a company work out a formal system for the payment of some sort of predetermined benefits to the employee at retirement. This must necessarily be based upon the specific terms of the contract establishing the type of retirement benefit agreed upon by the employer and the employee. While there are various shades to the agreement, such usually falls into two basic types that may either be defined as a benefit or as a contribution plan. Many factors serve as criteria for the determination of the exact benefits that the employees will derive under the corporate pension plan.

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An example of a contributing factor to the benefits a particular employee will receive is the length of stay for that employee in the establishment. Generally, the longer the length of stay, the more benefits that will accrue to the employee. The type of job the employee was doing in the organization in relation to the level of salary he or she was receiving also plays a role in the type of corporate pension plan this employee will receive in the eventuality of retirement. Employers generally choose the type of corporate pension plan that they will apply toward retiring employees according to their financial or resource capabilities in consonance with whatever corporate strategy they may have for the company. This is due to the fact that the right type of corporate pension plan can serve as a type of strategic resource that a company could use to attract the best employees in the business.

The corporate pension plan usually functions through the contribution the two parties to make to such a plan. In the case of the defined benefit plan, the specifics of the benefits are clearly stated and are defined according to predetermined factors that are the norm for the setting up of such a corporate pension plan. This is not the case in the defined contribution plan, as the benefits are not so rigid and can be adjusted upward or downward according to the fortunes of the company. It is this rigidity in the defined benefit plan that makes it an unattractive option for companies or employees who must consider the possibility of comfortably meeting any obligations stated in the plan, while still remaining profitable.

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