Salary Reduction Plan
What Does Salary Reduction Plan Mean?
A salary reduction plan is a pension plan that allows employees to allocate a portion of their salaries toward contributions to their retirement accounts. These contributions are typically tax-deferred, making the plan highly appealing to employees. In addition to insurance benefits, such pension plans are a common perk that employers offer to their workers.
Insuranceopedia Explains Salary Reduction Plan
Many employers enhance salary reduction plans by matching the employee’s contributions, making them even more attractive. However, these plans can be risky for employees if they choose to invest all of their contributions in the company’s stock. If the company goes bankrupt, employees could potentially lose their retirement savings. As with most financial decisions, diversifying investments is the wisest strategy.
