Pension Plan

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A pension plan is the general name for the administration of the pension fund that is established by either a company or a public entity to pay the pensions of its employees when they retire. Typically, the employees will contribute money to the fund during the course of their employment, and their employer will also contribute money. The way that the fund is organized and structured to pay the pensions is known as the pension plan. Traditionally, the most common form of pension plan has been the defined benefit plan, in which employees receive predetermined payment amounts when they retire. However, a different kind of plan known as a defined contribution plan is becoming more widespread. In this type of plan, the final benefit is not specified because it is unknown; only the amount of the contributions is defined. A 401(k) plan is an example of a defined contribution plan: you know how much money is being put into the plan, but the ultimate value will depend on the performance of the investments that make up the plan.