When the employee reaches 62 years of age, the individual can start to draw on their social security and receives a prorated amount. Profit Sharing Plan - a type of defined contribution plan under which contributions may vary from year to year. Employers typically contribute a portion of their profits to the pension fund, regardless of the level of contribution by the employee. A profit sharing plan may provide for benefit payments prior to retirement. Employees can have a portion of their compensation, which would otherwise be paid in cash, put into a company profit-sharing or stock bonus plan by the employer.
Some companies even match a portion of what the employee contributes to the plan.
These plans may not provide for benefit payments prior to retirement or normal retirement age. Target Benefit Plan - a type of money purchase pension plan which requires annual contributions based on a schedule which is intended to provide employees with a certain amount upon retirement. Unlike a defined benefit plan, the target benefit is not guaranteed. An actuary is only required to establish the contribution schedule at the time the plan is set up. This type of plan is not as popular as the other types of qualified plans.