What is the purpose of a pension plan?

The purpose of a pension plan is fundamentally about providing a dedicated retirement savings account offered by an employer to ensure financial security for employees in their later years. Pension plans are designed to accumulate funds over the course of an employee's working life, which are then distributed to them in retirement. This financial structure supports individuals in having a stable income after they stop working.

Pension plans often involve regular contributions from both the employer and the employee, and they typically offer various benefits such as investment growth over time and sometimes employer matching contributions. By participating in a pension plan, employees are able to save systematically for retirement, making it a crucial part of their long-term financial planning and stability.

In contrast, other options do not accurately capture the essence of a pension plan. While a government program for retired individuals exists, it does not constitute a pension plan provided by an employer. Tax incentives for saving for retirement may relate to various retirement accounts but do not specifically describe the function or structure of pension plans. Additionally, loans provided to employees for retirement are not aligned with the concept of a pension plan, which is fundamentally an account for saving and growing retirement funds rather than borrowing.