Advanced Funded Pension Plan

This is a pension plan that is funded in advance, either by the employer, the employee, or both, such as in a 401(k) or 403(b) vehicle with an employer matching feature.

If ABC Corp's pension plan promises each employee a lump sum of $1,000,000 upon retirement, then ABC will not hire a new employee unless they have $1,000,000 in cash or other liquid assets put aside. Conversely, if XYZ, Inc. offers a 401(k) plan with a 2% match, it will only hire an employee at a salary of $100,000 per year if it is sure it can afford $102,000 per year (upon retirement the employee then reaps the fruits of their 401k investment decisions). From the future retiree's perspective, this type of plan is superior to the alternative, "Unfunded Pension Plan," which just sounds terrifying.