Pensions

A lump-sum payment is an amount paid all at once, as opposed to an amount that is paid in installments over time. They are often associated with pension plans when an employee chooses a smaller upfront payment rather than annuities over the rest of their lifetime. Lottery winners often take a lump-sum payout as well, rather than yearly payments.

A pension plan is pool of money created by employer contributions that are then used to fund payments made to eligible employees after retirement. There are two main types: defined benefit plans and lump-sum payments. Traditional plans have become increasingly rare in the U.S., and have largely been replaced by retirement options such as 401(k)s that cost employers less.

A defined benefit plan is the most common type of employer-sponsored retirement pension plan. Employee benefits are calculated using a formula to that considers how long an employee has worked for the company and how much salary they earned. The employer is responsible for managing the plan's investments and risk, and usually hires an outside investment manager to do that.

The Teacher Retirement System (TRS) is a network of local city and state organizations that administer pensions and retirement accounts for public education employees. They also offer educators retirement planning assistance and advice. Each organization offers different plans and benefits to beneficiaries.

When a company-sponsored retirement plan has more liabilities than assets, it is considered an underfunded pension plan. That means the money needed to cover current and future employees who retire is not readily available. This can be caused by interest rate changes, stock market losses, and economic slowdowns. An underfunded pension plan is risky for employers because the guarantees to employees are often binding.

In a cash balance pension plan, employees who retire receive a set percentage of their annual compensation plus interest. This type of plan is maintained on an individual account basis like a defined-contribution plan such as a 401(k). The funding limits, funding requirements, and investment risk are based on the same requirements as a defined-benefit plan.

The person or company responsible for managing a retirement fund or a pension plan on behalf of participants and beneficiaries is known as a plan administrator. They have a fiduciary duty to act in the interests of plan participants and must properly collect and distribute funds to qualified participants.