401(k) and Pension Plans

401(k) plans and traditional pension plans are two parts of the traditional retirement plan.

This plan includes the “employer-provided pension” and “personal retirement savings or 401k”.

Here are differences in each plan:

Pensions

  • Guarantee a set income once retirement begins.
  • Investment and “longevity risk” lie solely on plan provider.

401(k) Plans

  • Defined contribution plan that places investment and longevity risk on individual employees.
  • Employees choose their own retirement investments.
  • No guaranteed minimum or maximum benefit.

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