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A 401(k) plan is a retirement savings plan in which employees contribute to a tax-deferred account via paycheck deductions (and often with an employer match). A pension plan is a different kind of ...
The way it works is the employer would set up a retirement plan, but it would be very different from 401(k), because the plan would cover mid- to low-income employees.
The gist of it: ERISA was created to protect workers by overseeing retirement accounts like traditional pension plans and, eventually, 401(k) and most 403(b) plans, but it only safeguards some of us.
This pre-tax option is what makes 401(k) plans attractive to employees, and many employers offer this option to their (full-time) workers. 401(k) payable is a general ledger account that contains the amount of 401(k) plan pension payments that an employer has an obligation to remit to a pension plan administrator.
The so-called Roth 401(k)/403(b) is a new tax-qualified employer-sponsored retirement plan to become effective in 2006, and would offer tax treatment in a retirement plan similar to that offered to account holders of Roth IRAs. For plan sponsors, the law requires involuntary cash-out distributions of 401(k) accounts into a default IRA.
The Pension Benefit Guaranty Corporation (PBGC) is a federal corporation created under the Employee Retirement Income Security Act of 1974. It currently guarantees payment of basic pension benefits earned by 44 million American workers and retirees participating in over 29,000 private-sector defined benefit pension plans.
Unlike traditional pension plans, in which the employer promises a specified monthly benefit at retirement, 401(k) plans are funded by contributions deducted directly from the employee’s paycheck.
The employer matching program and the tax deduction are great advantages to a 401(k) plan; these two alone keep many employees invested. [citation needed] Economically 401(k) plans are good because it incentivizes Americans to invest in anything they want and build their wealth with certain tax breaks.
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