The traditional retirement pension plan as we know it—what is commonly referred to as a “defined benefit plan”—started gaining popularity at the turn of the 20th century and during the rise of the American union. Pensions were established to reward employees with guaranteed income following their years of loyal service.

Soldiers, police and firefighters were among the first that received pensions before private industries such as banking, railroad companies, and manufacturing companies followed suit. Industries could compete for the best and brightest employees by promising a good retirement. By the 1970s, nearly half of the U.S. private sector workforce provided pensions for their employees.

While many companies have moved from defined benefit plans to 401(k) Plans and Employee Stock Ownership Plans (ESOPs), large employers, governments, unions, and others still provide traditional pensions. Pension plans must follow specific rules set by the US Department of Labor and federal laws such as the Labor Management Relations Act (LMRA) and Employee Retirement Income Security Act of 1974 (ERISA).