When searching for a relevant pension plan, many people can get greatly confused. While many employers offer a reasonable pension plan that most employees will stick to, other individuals prefer to look around and shop with insurance companies, banks/credit unions or look in what the government has to offer in terms of pension plans. There are various different types of pension plans, each offering unique benefits, and it is important to be able to understand what they have to offer before taking a decision as significant as which pension plan should be purchased – a decision that can significantly affect the quality of a retirees life.



Major Types of Pension Plans

First of all, every pension plan is set to enter one of the following categories; defined benefit pension plan and defined contribution pension plan. Those two plans are usually the standard offered by companies and employers. A defined benefit plan is designed to offer customers certain amount of benefits based on a formula that takes in consideration factors like the years of service for a particular company and his/her earnings.

Types of Defined Benefit Plans

There are three major types of defined benefit formulas;

· Final or best average earning formula,

· Career average earning formula

· Flat benefit formula.

The final or best average earning formula basically adjusts a clients pension in relation with his/her wages (ex. 1.6% of client average earnings during the best 10 years of clients career x number of years of service). The career average earning formula will allow the client to deduct a fixed percentage of his/her yearly salary to put towards the 401K retirement plan. Finally, the flat benefit formula basically takes a flat dollar amount per month or year.

Defined Contribution Pension Plan

The defined contribution pension plan is characterizes by a specific amount of money contributed for the client, in an investment account opened in the clients name. The beneficiary cannot know how much money will be available until retirement, as the money contributed in the investment account will then be used to purchase a pension at the time of the retirement. There are two major types of defined contribution pension plan; Registered Retirement Income Fund (RRIF) and Variable Benefit plan. The RRIF plan will allow to determine the level of income of the employee and manage his/her pension capital while allowing a certain level of flexibility when planning for tax and income purposes. The Variable Benefit plan is similar to the RRIF program but can be offered by a defined contribution plan. It is not always offered by all employers, so it is best for employees to inquire about the specific properties of a particular plan, or all the various pension plans being offered from the Human Resource associates in their organization.

Retirement capital is important, and most individuals want to make sure they have enough monetary resources to live comfortably once they decide to retire. It is extremely important to make oneself aware of and inquire about all the various options that exist which can allow for an informed decision when purchasing or selecting a particular pension plan. It is important that whichever plan is purchases/selected, meets requirements and needs. While a employees company might offered pre-determined plans that could require minor adjustments to fit his/her lifestyle, it is best for an employee to have a chat with the Human Resources before signing up to anything.

Pension plans can offer a host of retirement benefits, provided one is chosen which will benefit all of a clients needs in his/her older years. If ample research goes into it, a relevant pension plan can make a retirees life very comfortable in every respect.