Page 42 - Life Assurance

paid to all employees regardless of their
earnings or years of service.

Years of service are extremely important in
determining the total pension benefit. Frequent job
changes and withdrawal from the labor force for
extended periods can significantly reduce the size of
the pension benefit. This is especially true for
women who may have prolonged breaks in
employment due to family considerations.

Funding of Pension Benefits

Qualified private pension plans use advance
funding to finance the pension benefits.
Advance funding means the employer
systematically and periodically sets aside funds
prior to the employee's retirement. This type of
funding increases the security of benefits for the
active employees because funds are periodically set
aside prior to retirement, and the contribution and
investment income receive favorable income-tax
treatment.

A qualified plan must also meet certain
minimum funding standards. In a defined-benefit
plan, the employer must make an annual
contribution at least equal to the normal cost of
the plan, plus an amount sufficient to amortize
any unfounded liabilities over a period of years,
which can range from 5 to 40 years depending
on the liability and when it occurred. Normal

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