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Retirement Systems and Pensions Plans

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Deborah T. Johnson
June 27, 2020

The American Dream is to graduate from college, start a career, purchase a home, get married, build a family, retire from an organization after 25 years and enjoy your retirement on a beach in paradise. Right? Well, somewhere between graduating from college, investing many years into an organization, building a family, getting married and buying a home there becomes a fork in the road. Either pieces are falling into place, missing altogether, happen in a different order or never happen at all. However, one thing is for sure; retirement is on someone’s bucket list. When hardworking individuals think of retirement, many may consider money saved and money earned as a huge deterrent. A blissful and stress-free retirement is possible—it just is heavily dependent on one’s lifestyle and spending habits, which will be very strict for those who live on a fixed income. Retirement planning is a must and starting as early as possible is a definite must. With retirement, Friday is everyday of the week!

Retirement plans help employers and guide employees with the option of investing in different plans and meeting certain financial goals. A retirement system is defined as an organization that facilitates retirement savings and benefits distribution for government workers. There are quite a few different forms of retirement systems that exist. The Employee Retirement Income Security Act of 1974 (ERISA) was a federally mandated law which established minimum standards for most voluntarily established retirement and health plans in private industry to provide protection for individuals in these plans. ERISA set high standards for the plans to provide participant information regarding the features, funding and other assorted benefits as it pertained to the plans. The laws and regulations under ERISA do not cover plans associated with governmental entities, churches or plans which comply with workers compensation, unemployment or disability law.

There are many retirement plans which exist within the retirement community. However, I will discuss a few of the most common. Some organizations offer Simplified Employee Pension Plan (SEP), 401(K), Roth IRA, Employee Stock Ownership Plan (ESOP), 457 Plan and a Pension.

A Simplified Employee Pension Plan (SEP) offers tax-free contributions and gives employers an easy or more “simple” way to contribute to their employee’s retirement options, including their own retirement account. These contributions are put into an Individual Retirement Account, also known as an Annuity (IRA).

Next is a 401(K), which has a few different forms. However, these are quite common within private organizations which offer profit-sharing plans. Employers generally contribute a portion or even matching employee contributions for the length of employment within that organization.

Roth IRAs are one form of an Individual Retirement Account (IRA) or an annuity which does not allow individuals to make withdrawals from it. Making qualified contributions gives an individual the benefit of having those funds become tax-free. Also, contributions made to the Roth IRA accounts can still be made after the age of 70, allowing funds to remain in this account for life.

Employee Stock Ownership Plans (ESOP) are another qualified type of plan which offer a stock bonus or money purchase options. This allows employers to contribute to the plan every year. With an ESOP, each account is required to invest primarily in qualifying employer securities as defined by the IRS. Meeting certain requirements of the IRS, both employees and the Department of Labor share responsibilities and jurisdictions over diversification requirements regarding the ESOP plan.

A 457 Plan, more common than many other plans, is a deferred compensation plan. This type of plan is popular with local and state governments and with non-government entities. The 457 Plan allows employees to defer income taxation on retirement savings into future years. 457 Plans are simple plans to understand and contribute to. Through salary reduction, employees contribute up to a certain limit ($19,500 for the year 2020 based on the IRC 402(g) limits). You may find contribution limits for the current year, 2020 and previous years on the listed on the IRS website.

Pensions fall under systems and plans which benefit government employees. Pension plans are retirement plans that require an employer to make regular contributions to a pool of funds set aside for worker’s future benefits. The pool of funds is invested on behalf of the employee. These funds generate income for the employee upon retirement.

Each retirement plan and system allows individuals a benefit that will have lasting effects on their future. With the rising cost of medical care, prescription medications, and just the everyday cost of living increasing, retirement options are a must unless working until the end of life is one’s choice.

In closing, retirement systems and pensions are not the end-all-be-all. However, they do provide a great means and sense of security for those individuals who seek retirement from organizations who provide these funding systems.


Deborah T. Johnson, MPA.
Administrative Professional with the City of Houston/Houston Public Works.
Executive Master Public Administration/Public Policy, Texas Southern University, Houston, Texas.
Bachelor of Applied Arts and Sciences, Lamar University, Beaumont, Texas.
Associate of Applied Arts and Sciences, Houston Community College, Houston, TX.
Photo credit: Shane A. Hooks (my seven-year-old son)
[email protected]

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