What Are Pensions?
Pension plans are benefits offered by many employers that provide workers with cash payments in retirement. In 2006, about 24 percent of Americans age 65 and older received pension benefits from past private-sector employers, and about 11 percent received benefits from past public-sector employers (Purcell 2007a). Median annual benefits in 2006 were about $7,200 among older adults receiving private pensions and $14,400 for those receiving pensions from government employers. There are two basic types of employer-sponsored pension plans. Defined benefit (DB) plans, once the most common type, promise specific monthly retirement benefits that usually last until death. Defined contribution (DC) plans, which now dominate, function essentially as individual tax-deferred retirement savings accounts into which both employers and employees usually contribute. Cash balance plans are hybrids that combine features of DB and DC plans.
