Listen to a Business English Dialogue About Unfunded pension plan
Aria: Hi Elena, have you heard about unfunded pension plans?
Elena: No, I haven’t. What are they?
Aria: Unfunded pension plans are retirement plans where the employer promises to pay retired employees a specified pension benefit without setting aside funds specifically for that purpose.
Elena: So, how do unfunded pension plans differ from funded pension plans?
Aria: In funded pension plans, the employer contributes money to a pension fund, which is then invested to generate returns to fund future pension payments, whereas in unfunded plans, the employer pays pensions directly from its operating budget.
Elena: Are there any advantages to having an unfunded pension plan?
Aria: One advantage is that it allows employers more flexibility in managing cash flow since they don’t have to set aside funds for future pension obligations.
Elena: What are some potential drawbacks of unfunded pension plans?
Aria: The main drawback is that if the employer doesn’t have enough funds to meet pension obligations in the future, they may face financial strain or have to reduce pension benefits for retirees.
Elena: How do employees view unfunded pension plans?
Aria: Employees may view them with caution because there’s a risk that the employer may not be able to fulfill its pension promises if financial difficulties arise.
Elena: Thanks for explaining, Aria. Unfunded pension plans seem like they come with both benefits and risks.
Aria: You’re welcome, Elena. Yes, it’s important for both employers and employees to understand the implications of these pension arrangements.