A pension is a retirement plan that is driven by the benefit it will pay to participants in the plan. This is known as a defined benefit plan.
What this means is, each member of the pension is entitled to a benefit that is calculated based on a chosen number of factors pertinent to that individual. For most plans such variables include salary and time of service.
The alternative to a defined benefit plan is a defined contribution plan, where no explicit benefit is made or guaranteed, and instead the plan is defined by the contributions that are made either by the participant (employee) or the participant's employer.
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What this means is, each member of the pension is entitled to a benefit that is calculated based on a chosen number of factors pertinent to that individual. For most plans such variables include salary and time of service.
The alternative to a defined benefit plan is a defined contribution plan, where no explicit benefit is made or guaranteed, and instead the plan is defined by the contributions that are made either by the participant (employee) or the participant's employer.