Pension Parachute

Definition

Pension parachute is a kind of defensive approach adopted by corporations to get secured against unreceptive takeover. Basically, Pension Parachute is a pension agreement which states that in the case of hostile take over the raiding firm will not be able to use pension assets to finance the acquisition and the pension plan assets are only available to provide benefit to the participants of the plan.

Why to Use Pension Parachute

Pension parachute is a very advantageous concept which protects surplus cash in the pension funds from the unfriendly raiders. The funds in any case remain the property of the target firm.

In fact, pension plans are offered by employers to their employees and involves paying a certain amount into a pension fund. The amount deposited in pension funds is neither taxed to employers nor to employees until employees get retired and starts collecting his pension benefits. Some employers offer pension plans in which small amounts of salaries of employees are deposited in pension funds. This facility of pension is very beneficial for employees.

When due to one reason or another a company is unwillingly taken over by any other competitor or rather, the reader uses the finances of targeted company for his own benefits. If pension parachute is not available to pension funds, these funds will also be taken over the invading company. On the other hand, if a company has got cover through pension parachute, its pension funds will remain safe and the partners who have made this agreement will be liable to use these funds.

Conclusion

It is always advisable to adopt a protective measure and particularly when a lot of investment is involved it is highly recommendable to get your revenue protected. Companies and firms are always looking for better risk management policies. Pension parachute is also a very useful tactic which could reduce and minimize risk of losing all your worth and must be followed.