Pensions, military retirement pay, and other defined benefit plans

A pension, also known as defined benefit plan, is a type of retirement plan in which an employer contributes to a common asset pool of funds set aside for employees’ future benefit. These funds are then invested on the employees’ behalf. The employees receive the funds upon retirement.

A defined benefit plan provides a specific income for retired employees, either as a lump sum or as a pension (an annual lifetime payment). The pension amount usually depends on the employee’s age at retirement, final salary, and the number of years on the job.

Servicemembers who remain on active duty or serve in the Reserves or Guard for a sufficient period of time (usually a minimum of 20 years) may retire and receive military retirement pay.

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