About Long Term Pension Liabilities

A pension may employ the use of annuity contracts to ensure that long-term liabilities are satisfied. An annuity is an insurance policy that guarantees payment to an individual for life or a set number of years. A pension annuity provides the employer with a simple way to manage pension liabilities. A fixed annuity, as well as a fixed-cash-value life insurance policy, provides the cash and guarantees necessary for the employer to pay all benefit promises when you retire and not worry about poor investment performance.

You benefit because the more guarantees the employer uses in the pension, the more secure your pension is. A guaranteed pension plan that is fully insured uses the investment experience of insurance companies. These insurance companies invest primarily in bonds and bond-like investments. The bonds pay a guaranteed payment, which provides the guarantees of the pension plan. You’ll never have to worry about not getting a pension check during retirement.

The more guarantees your employer seeks, the more expensive the plan. Guaranteed insurance policies might pay interest rates that are lower than what could be achieved by using non-guaranteed investments. The guaranteed nature of the underlying investments means the employer may need to contribute significantly more money to the plan. The increased contributions may mean the employer cannot offer other employee benefits, expand the business or perform other beneficial business activities required for long-term growth.

You should consider saving money outside of the pension plan. A personal savings ensures that you have money available to you regardless of what happens with your employer. You also have control over the underlying investments. With a pension, your employer controls the investment allocation. A private savings supplements whatever your employer doesn’t provide for you.