pension plan

Scheme under which retirement benefits accrue and are distributed to the beneficiary employees. Its two basic types are (1) Deferred compensation plan in which an employer pays a fixed monthly pension depending on the employee's retirement age, length of service, and last salary received. It may also be paid to a deceased employee's surviving spouse. (2) Defined contribution plan in which the employee contributes a percentage of salary every month and the employer matches it. Upon retirement the employee receives the combined sum. Also called pension scheme.