Under a defined-benefit pension plan, the annual pension benefits must be definitely determinable using a formula contained in the pension plan. Forfeitures under a defined-benefit pension plan cannot be used to increase the benefits any employee would otherwise receive under the pension plan. The amount provided under the pension plan could be a flat monthly pension benefit, or an amount based on a certain percentage of employee compensation. Employee does not receive pension benefits until some time in the future. Income earned within the pension plan fund is tax deferred.
Employee incurs no tax liability until amounts are distributed from the pension plan.
Qualified distributions can be rolled over into an IRA tax free. If qualifying distributions are made in the form of stock of the employer corporation, tax on the appreciation in the value of the stock is deferred until the stock is sold. UBTI is income from a trade or business regularly carried on and not related to the exempt purpose of the organization. The income from the business will be considered unrelated to the exempt purpose of the pension plan. A qualified pension plan should not invest in any partnership that has unrelated debt-financed property that produces rental income.