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lancelotarnold

Pensions & Pension Annuities

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A shrinking number of businesses, major corporations and governments still provide retirement security to workers via pensions. In some pension plans, workers can choose how to get their money – through a series of payments, in a lump sum or a combination of the two.

What Are Pensions?

Pensions are an employment benefit and a way for a company to help workers finance their retirement. Pension plans date back to ancient Rome, when soldiers received pensions after years of service. Pensions became popular in the United States when President Franklin Roosevelt introduced the world’s largest defined benefit pension plan in 1935 with the Social Security Administration.

As the American middle class grew following World War II, many employers offered pensions as an employee benefit.

Employers who make monthly payments to former workers use pension funds that both the employer and employees paid into during the years the employee was working.

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In order to qualify for a pension, employees generally must have a minimum number of working years. The plans pay out benefits based on the recipient’s age, health, experience and company resources.

Since the early 2000s, the number of workplace pension programs has dwindled; many companies found it difficult to fund pensions over a long period of time while also pleasing shareholders who wanted more profits and fewer long-term liabilities.

The bulk of employers today with pension plans are federal, state and local governments, and branches of the U.S military. Federal pensions serve 2.3 million active civilian employees. State and local pensions cover 14.8 million active participants. The government issues pensions in various forms, including defined benefit and defined contribution plans.

Some private companies and unions still offer pensions as a benefit, as well. Private sector pensions hold more than $2.2 trillion in assets and cover around 44 million working Americans.

Some employers use their money to fund and control pensions. Others work with insurance companies to set up third-party annuities for employees, which provide security and relieve the company of the long-term financial obligation. Companies that use pension annuities include Verizon, General Motors, Ford and Heinz.

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