A few labor unions and state and local governments began to offer pension plans shortly thereafter, and by 1935 governments in half the states and many businesses were offering pension plans. In 1997 about half of all U.S. workers had pension plans. Employers establish pension plans by paying a certain amount of money into a pension fund. The money paid into this fund is not taxed to the employer, and it is not taxed to the employee until the employee retires and begins to collect pension benefits. The employer gives control of the pension fund to a trustee, who may invest the money in stocks and bonds and other financial endeavors to increase the fund.
Some pension plans require the employee to make a small, periodic contribution to the fund.
The amount of pension that a pensioner receives depends on the type of pension plan. A defined benefit plan provides a set amount of benefits to a pensioner. Under a defined contribution plan, the employer places a certain amount of money in the employee's name into the pension fund and makes no promises concerning the level of pension benefits that the employee will receive upon retirement. Employers using defined contribution plans contribute an amount into the pension fund based on the employee's salary. The difference between the two types of plans is that in a defined contribution plan, the employee assumes the risk of investment failure because the funds are not insured by the federal government.