Allocated Benefits

Pension plans come in different varieties, with structures varying from plan to plan. Some pension plans manage their funds directly, attempting to grow the assets with savvy investments. Other plans take a more conservative approach. Allocated benefits represent an example of the more conservative type. In this version, the payouts don't come from the retired worker's former employer. Instead, they are backed by an insurance company.

Basically, the insurance company receives a series of payments, called premiums, during the time when an employee is working. Once paid up, the insurance company guarantees the retirement benefits, which are paid out as income, leaving the retired worker free to watch home repair shows on TV and futz around in the garden without worrying whether the retirement benefits will get cut off suddenly.