What is a retirement compensation arrangement?

A retirement compensation arrangement is a type of employee benefit plan that provides retirement income to employees. It is designed to supplement the retirement benefits provided by government-sponsored programs, such as Social Security.

Under a retirement compensation arrangement, the employer contributes to a fund on behalf of its employees. The employer can make contributions in the form of cash, securities, or other property. The funds are invested in a variety of securities, such as stocks, bonds, and mutual funds, to generate income and grow over time.

Employees may be able to contribute to the retirement compensation arrangement as well. The contributions are usually made on a pre-tax basis, which means they are not taxable until the employee begins receiving benefits.

When an employee retires, they can begin receiving payments from the retirement compensation arrangement. The payments can be made in a variety of ways, including as a lump sum or as a series of regular payments. The amount of the payments is based on the value of the employer's contributions and any investment gains or losses.

Retirement compensation arrangements can be an attractive benefit for both employers and employees. Employers can offer a valuable retirement benefit without significant administrative costs, while employees can save for their retirement and receive regular payments to supplement their other retirement income sources.