How to Fund a Defined Benefit Pension Plan

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    • 1). Determine your eligibility for your company's pension plan. In some instances, you may only be eligible to be an "invested employee"--meaning you are eligible for a pension upon retirement--if you meet certain criteria. That criteria may be making over a certain amount of money per year and/or years of service. For instance, your company may require that you serve at least five years with the company before being eligible for a pension. Or, they may require that you earn more than $50,000 annually in order to qualify and be a full-time employee.

    • 2). Speak with your human resources representative and/or your benefit plan manager. They will advise you on your options for enrollment. In most cases, you are automatically enrolled in the company's pension plan once you meet the criteria for qualification. However, be sure to check with your employer to be sure you are meeting all of those criteria. In addition, check if there are any fees associated with being enrolled in the company's pension plan.

    • 3). Determine how much will be deducted from your paycheck for the pension plan. Pension plans operate by an employer investing funds into a financial portfolio. The returns on those investments then help fund the pension plans for the employees. In a defined benefit pension plan, the results of the investments (gains or losses) are irrelevant since the company already has agreed to provide a certain amount to each employee as a part of their pension.

      In general, the employer funds this pension plan. However, some plans also require a nominal amount from each eligible employee each paycheck. For these plans, an employee is only eligible for the pension plan if they contribute as outlined by company policy. Check with your employer about their specific requirements.

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