Pensions and Other Savings Plans

An employer may offer several types of savings plans to its employees. In its simplest form, a business may arrange to make regular deductions from employee paychecks and deposit these funds in any number of pension plans. A slightly more complex arrangement is for the company to match some portion of the contributed funds and deposit them together with the employee funds. These contributions may vest immediately or at some point in the future; vesting gives ownership in the company-contributed amount to the employee. The company may also retain the contributed funds and pay back employees with company stock.

If funds are being matched by the company, there will be an upper limit on the amount of matching, as well as a matching percentage. For example, a company may contribute 50 percent of the amounts contributed by its employees, up to a maximum of 6 percent of an employee's total pay.