Understanding Pension Plans: Retirement Benefits & Employer Contributions

A pension plan provides payments in the form of retirement benefits or disability compensation, and it can provide payments to the beneficiary of a former employee following his or her death. The employer contributes a predetermined benefit amount according to an employee's current salary. The fund is controlled by a financial institution until disbursed after retirement. The funds from the pension plan are used in real estate, stocks, bonds and other assets for a return on investment. The pension plan payments are ordinarily tax deductible for the employer, but employee contributions may be taxable. Self-employed individuals can also apply for a pension plan using the Keogh plans.