What is the difference between a pension and a 401(k)?
A pension is an example of what is called a “defined benefit plan,” which pays the retired employee a specific monetary benefit, usually monthly. It is an annuity. A 401(k) or an IRA is an example of what is called a “defined contribution plan.” This is a plan to which the employee himself contributed, with or without some degree of matching contribution by their employer. Defined benefit contribution plans like 401(k)’s are usually easier to divide, because they are nothing more than a retirement savings account on which taxes are deferred, while pensions have extra features that make division more difficult. Both types of plans, however, are divided through QDRO’s or EDRO’s.
