How social security payments affect private pensions

Many workers look forward to receiving benefits from private pension plans as well as from social security . Half of all full-time wage and salary workers in private industry in May 1979 were covered by pension plans ;' nearly all of them were also under the social security system . This dual retirement income has fostered interest in coordinating public and private plans . Often, social security payments are considered when setting the terms of private pension plans . There are two types of private pensions plans: defined contribution plans, which require an employer to contribute a specified amount of money into a pension fund ; and defined benefit plans, which provide specified benefits according to a formula taking into account an employee's years of service, or earnings, or both . A defined contribution plan does not promise a predetermined level of benefits-the benefits paid at retirement depend on the amount credited to an employee . In a defined benefit plan, pension benefits are predetermined and the employer must make contributions adequate to finance those benefits . Both types of plans may reflect the existence of social security (Old-Age, Survivors, and Disability Insurance) either implicitly, by informally providing lower annuities than would be the case if social security benefits were not available ; or explicitly, by formally recognizing the existence of social security .z Plans which explicitly acknowledge social security benefits are called integrated plans . Their formulas generally recognize not only the level but also the underlying structure of social security benefits . For example, social security benefits as a percent of preretirement earnings (replacement rates) are greater for low-wage earners than for high-wage earners. Some employers counter this difference by using a