A pension plan serves as a financial strategy to ensure financial stability after retirement. It involves regular contributions from either the employer, the employee, or both into a pension fund during the employment period. The contributions accumulate over time and are paid out in regular installments or as a lump sum upon retirement. Pension plans can be of various types, such as defined benefit plans, where the retirement income is predetermined based on salary and years of service, or defined contribution plans, where the retirement benefits depend on the contributions made and the fund's investment performance. For example, an employer might offer a pension plan promising employees who worked for 20 years a pension equal to 50% of their average last five years' earnings. Including pension plans in financial planning provides individuals with a safety net during their retirement years, ensuring that their quality of life is maintained. Accountants often include pension plan details as part of the balance sheet reconciliations in the financial statements, ensuring compliance with financial reporting standards.