Funding Agency and Funding Instruments
An employer must select a funding agency when a pension plan is established. A funding agency is a financial institution that provides for the accumulation or administration of the funds that will be used to pay pension benefits. If the funding agency is a commercial bank or individual trustee, the plan is called a trust-fund plan. If the funding agency is a life insurer, the plan is called an insured plan. If both funding agencies are used, the plan is called a split-funded combination plan.
The employer must also select a funding instrument to fund the pension plan. A funding instrument is a trust agreement or insurance contract that states the terms under which the funding agency will accumulate, administer, ...
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