You Need to Know
If you're like most people, you have questions about your 401ks. You might
be wondering how a 401ks works, exactly what a 401ks is, or how you can
revive the dwindling balance in your 401ks.
What is a 401k plan?
A 401k plan is an employer sponsored retirement plan and is grouped into two categories-defined
benefit and defined contribution. With a defined benefit plan, the employer promises
to pay a defined amount to retirees who meet certain eligibility criteria. With
a defined contribution plan, the plan defines the contributions that an employer
can make and not the benefit that the employee will receive at retirement.
A defined benefit plan usually links the benefit to the amount of service and is
based on the final average salary. Employees can usually predict the monthly retirement
income they might receive with this type of plan and might also be given the choice
of a lump-sum benefit at retirement.
A defined contribution plan is not a defined benefit so the employee cannot predict
a monthly retirement income. If an employee leaves the company, they usually receive
the proceeds in a current or deferred lump sum or annuity.
401ks are very popular and an excellent way to plan for your retirement. As with
any other investment, you do need to carefully watch your portfolio and make wise