Integrated Pension Plan

What Is an Integrated Pension Plan?

An integrated pension plan is a employer-based pension plan where the employer counts Social Security benefits as part of the total benefit that the plan participant receives. Said another way, employers that utilization an integrated plan reduce the pension benefits that their employees receive by a percentage of the amount that they receive in their Social Security check. In the event that the pension plan were not integrated, employees would receive a greater sum of money from their employer.

Understanding Integrated Pension Plans

A pension plan is a type of retirement plan in which the employer is responsible for making contributions to the employee's retirement plan. The pension plan is a pool of money that is set to the side to pay the employees a month to month benefit when they retire. The money is invested for the employee's benefit, and any earnings on those investments are utilized to pay the employee their retirement income. Pension plans have generally disappeared due to the financial cost and responsibility that the employer has for their laborer's retirement benefits.

An integrated pension plan factors in the employee's Social Security benefits into the formula for deciding their pension benefits. Thus, an integrated pension plan is less costly and less financially oppressive for the employer.

Integrated pension plan participants collect from their employer as well as Social Security. A few integrated plans have a predetermined total benefit as a top priority while deciding payout; these plans search for Social Security and pension funds to consolidate toward meeting that goal.

However, employees truly do have some protection. As per a 1986 law, an employer that enlists employees in an integrated pension plan can't reduce private pension distributions by over half.

Why Integrated Pension Plans Are Used

Several factors probably play a job in a company's decision to take on an integrated pension plan. To start with, there are several payroll contemplations that accompany an integrated pension plan; in particular, firms can reduce their required OASDI payment. OASDI (advanced age, survivors, and disability insurance) is the payroll tax that employers collect from employees to fund the country's social security program. Employers keep 6.2% of their employees' pay and afterward forward it to the government. As far as it matters for them, employers must likewise pay 6.2% from their own funds. With pension integration, firms can offset part of this tax by lessening employee pension benefits.

Second, a non-integrated pension plan could bring about lower-paid workers getting combined pension and Social Security benefits that surpass their pre-retirement earnings, which could be thought of as unfair. Third, firms might see an integrated plan as an enrolling device to draw in and hold skilled staff. The idea is that integration could take into consideration higher pension benefits, inside limits, for higher-paid workers.

Advantages and Disadvantages of Defined Benefit Plans

Defined benefit pension plans offer participants security, in that they realize their income stream upon retirement. Additionally, the Pension Guaranty Corporation (PBGC) safeguards the administration of their defined benefit plans. Assuming something happened to the company, the PBGC would step in and cover pension distributions.

A disadvantage of a defined benefit pension plan is that a participant's income potential might be limited. For instance, a 401(k) plan participant would have the option to pick individual investments that might lead to higher annual returns. Thusly, one more likely disadvantage of defined benefit pension plans is that participants don't have control over the investments.

Features

• An integrated pension plan is an employer-based pension plan in which Social Security is considered part of the employees' total benefits.
• A possible disadvantage of defined benefit pension plans is that participants don't have control over the investments.
• An integrated pension plan can assist employers with decreasing the cost of a traditional pension plan, while as yet offering their workers stable retirement income.