Tag pension

A Tag Pension is a type of pension plan that is commonly used in the United States. Here's a brief overview:

What is a Tag Pension?

A Tag Pension is a type of defined benefit pension plan that is funded by the employer. It is also known as a "cash balance" or "hybrid" pension plan. The plan is designed to provide a predictable retirement income to employees, while also providing a way for employers to fund their pension obligations.

How does a Tag Pension work?

Here's a simplified explanation:

1. Accrual: The employer contributes a certain amount to the plan each year, which is credited to the employee's account.
2. Tag: The employer sets a "tag" or a target benefit amount, which is the amount the employee can expect to receive in retirement.
3. Accumulation: The employee's account grows over time, based on the employer's contributions and the plan's investment returns.
4. Retirement: When the employee retires, they receive a pension payment equal to the tag amount, minus any outstanding debt or loans.

Key features of a Tag Pension:

1. Predictable income: The tag amount provides a predictable income stream in retirement.
2. Portability: Tag Pensions are often portable, meaning that employees can take their account balance with them if they change jobs.
3. Flexibility: Employers can adjust the plan's funding and benefits over time to ensure the plan remains sustainable.
4. Risk management: The plan's investment returns are managed by the employer, which can help reduce the risk of investment losses.

Pros and cons of a Tag Pension:

Pros:

• Predictable income in retirement
• Portability and flexibility
• Risk management

Cons:

• May not provide as much retirement income as a traditional defined benefit plan
• May require employees to contribute to the plan
• May have limitations on withdrawals or loans

Overall, a Tag Pension can be a valuable benefit for employees, providing a predictable income stream in retirement while also offering flexibility and portability.