A pension plan is a program that allows an employee to accumulate tax-sheltered money for retirement, with or without employer assistance.
How Does a Pension Plan Work?
A pension plan is on a voluntary basis. Employees can choose to contribute a portion of their salary to a pension plan, so that the money grows tax-free. The money invested is then used by employees when they retire.
Some employers also contribute to their employees’ pension plans to encourage their participation.
Who Is Eligible to a Pension Plan?
Which employees are eligible for their employer’s pension plan depends on the conditions set out in their employment contract.
For example, an employer may decide that only those with at least 3 months’ seniority with the company can contribute to the pension plan.
Some employers may also set specific conditions on the use of funds, such as a minimum age or number of years of service.
What Is the Difference Between Private and Public Pension Plans?
Typically, private pension plans are complementary to public plans. This means that all citizens have access to public pension plans. On the other hand, only employees who have contributed to their employer’s private plan benefit from it.