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What is a pension?

A pension is a retirement account that provides monthly income for retirees and is sponsored and funded by an employer.

Income benefits vary between employees depending on their tenure, age, and compensation. Generally, an employee who worked for the company longer or had a higher income will have more pension income than an average employee. Most pension income is taxable unless employees contributed after-tax dollars to the pension. Employers can terminate a pension at any time, but the employee retains employer contributions they’ve earned during their tenure. Pensions have largely been replaced by 401(k)s, but unlike pensions, they don’t offer guaranteed monthly income.