Occupational Pension Schemes in the United States


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According to the U.S. Law, pensions can either be qualified or non – qualified. Pension schemes under qualified plans are protected under The Employees Retirement Income Security Act and offers tax incentives. Qualified plans must pass non – discrimination tests which ensures that a large cross – section of workforce is offered the opportunity to participate in the plan. Some rules also implies denial of permission to highly paid employees, generally those earning more than US $125,000, deferring a much greater amount than lowly – paid employees into 401(k) plans.

A collective agreement between multiple employers and a Labor Union is necessary for availing multi employer pensions. The U.S. congress enacted the Multi Employer Pension Protection Act of 1980  in response to the growing outrage over funded ratios.

401(k) plan

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The most common form of plan is called 401(k) plan. This plan allows the participants to defer a portion of their pay, generally on a before – tax basis up to a certain annual limit. Participant’s pay deferral is often chosen by the employer on the basis of a ‘matching’ contribution on behalf of the participant. Contribution of 3 per cent of pay is the most common matching contribution, provided the participant defers 6 per cent of pay. A 401(k) plan is a defined contribution plan which is a kind of deferred or cash arrangement. Through this plan, the employees can elect to defer receiving a portion of their salary which is instead contributed on their behalf, before taxes, to the 401(k) plan. A dollar limit is set on the amount an employee may elect to defer each year. Employees who participate in this plan assume responsibility for their retirement income by contributing a portion of their salary and in many cases, by directing their own investments.

Simplified Employee Pension Plan (SEP)

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A Simplified Employee Pension Plan (SEP) is also a relatively uncomplicated retirement savings plan which allows employees to make contributions to individual retirement accounts (IRAs) on a tax – favored basis owned by the employees. However, employers are allowed to establish SIMPLE IRA plans with salary reduction contributions. The employer may continue to allow salary reduction contributions to the plan if he had a salary reduction SEP.

Stock Balance Plan

A Stock Balance Plan or Profit Sharing Plan is a contribution plan under which an employer may determine, annually, how much amount will be contributed to the plan. This plan includes a formula which allocates a portion of each annual contribution to each participant.

Conclusion

In the above article, we have mentioned about some occupational pension schemes in the united states. Hope you liked it and got all the necessary information regarding this.

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