Even if it will be a while before you actually get a pension, it never hurts to know how they work. A pension plan is a lot less hands-on than most other retirement plans. Your employer runs the plan's investments and handles its payouts when you finally do retire. This removes a lot of the stress of retirement planning, but a pension can be frustrating because it doesn't have the flexibility of other retirement plans.
No Investment Risk
A big advantage of a pension plan is it completely protects you from investment risk. Your employer also plans the pension's investment strategy. If the stock market tanks, the company needs to make up the lost money. You won't see a drop in your retirement benefit.
Even if your employer goes bankrupt, your pension is still safe. A government agency, the Pension Benefit Guaranty Corporation, will take over your payments.
Payments for Life
When you reach retirement, your pension plan will give you monthly payments for the rest of your life. It's as if you're still getting paid by the company even though you're no longer working. The amount of your pension depends on how much you were making with the company. It may not be the full amount of your previous salary.
If you're married, you can base the pension on your spouse's life as well. This means if you die first, payments would still go to your spouse. However, this shared pension means you'll have smaller monthly payments than you'd have with a regular pension.
No Investment Control
On the down side, your pension won't grow with any market gains. If the stock market goes through the roof, the extra money stays with your employer. You also can't move it into your own investments. Your pension could also freeze you out of an Individual Retirement Account.
The IRS doesn't want taxpayers to have too many retirement tax breaks. As of 2019, couples making more than $123,000 combined can't contribute to an IRA if they're also enrolled in a pension.
No Early Access
If you run into a financial emergency, you can't count on the pension money to bail you out. You can take out early withdrawals or loans from other retirement plans, like a 401(k), but there's no such choice with a pension. That money stays with the employer until you actually retire.
The only way to get it early is if you quit and your employer chooses to send you a lump sum payment. That's his decision, not yours. Once you do retire for real, you get the money once a month and can't take out any advances.