What is the difference between employer-sponsored lifetime pension plans and 401(k) plans?
With the old-fashioned lifetime pension, a retired employee receives a set amount of money every month for the rest of his or her life. The amount is based on how long the employee has worked at the company, or based on a percentage of the final salary before retiring. With a company-sponsored 401(k) plan, employees get an investment account into which they can save pre-tax dollars for retirement. The employee decides how much to save and how to invest it. Many companies match the employee’s contributions — sometimes 50 cents on the dollar, sometimes dollar for dollar or more — up to a certain percentage of the employee’s income. When the employee retires, the 401(k) account pays out a lump sum, and it is up the retiree to decide how to spread his money out to cover his or her retirement years.
