Pension? what is this?

Question

How does a job offer a pension work? Is this like 401 K?

Do you have to contribute to the pension?

Answer 1

Since you are asking this in the law enforcement section, I will assume you are wondering what pension police talk about. It is the retirement benefit that is paid by the department, usually taking the place of social security benefits. In Houston, the amount we would normally pay in Social Security tax is paid into the pension fund. The city pays a larger amount into the fund as well.

It is different from a 401k because it (pension) is the primary retirement benefit and the 401k is a supplemental benefit in which the employee can decide whether or not to participate.

Answer 2

A pension is a retirement benefit offered by an employer. Pension refers to the benefit you would receive from a number of different retirement plans your employer might sponsor. The chief characteristic of a pension plan is that it guarantees a certain benefit to the participants. Such as:

You will receive a contribution equal to 6% of your annual pay each year.

or

At retirement, you will receive a benefit equal to 1/2 of your average salary for life.

The employer funds the pension benefit not the employees. This is the opposite in a 401(k). While a 401(k) plan is also a retirement plan, employees primarily fund the 401(k) though the employer might also contribute.

Answer 3

A 401 K is a type of plan that allows you to save for retirement, but it's not really a pension because you can lose it all if the investment choices you make crash and burn. Employers often match a portion of the employee's contribution to a 401k, but the worker bears all the risk. A traditional pension was a "defined benefit" pension, where the employee knew what he or she would receive from the company at retirement--it was up to the company to make sure the money was there to pay it. A newer type of pension is a "defined contribution" pension, where the employer knows up front what it is required to contribute. Many companies are switching from the defined benefit to the defined contribution type in order to save money. In recent years many companies have walked away from their pension obligations by declaring bankruptcy.

Answer 4

That depends on your company. Some offer a traditional pension to which you do not make any contributions. Others offer a 401k type retirement savings plan that they will match a certain amount of your contributions in each year. You need to contact the Human Resources dept. of your company to find out what type of benefit they offer.