The firm promises to make periodic payments to employees after retirement. The employee does not need to be concerned about the investment decisions as the employer assumes all the investment risk.
In practise, most firms set up a trust to manage the pension assets. The trust is responsible for generating the income and principal growth necessary to pay the pension obligations as they become due. The employer is responsible to make regular contributions to the trust fund so that this objective can be achieved.
Compare: Defined contribution plan« Back to Index