| The two main types of plans through which it is | | | | for their employer and the size of their final |
| possible to prepare financially for retirement are | | | | salary. It is up to the employer to ensure that |
| defined contribution plans and defined benefit | | | | they have invested enough money to be able to |
| plans. A 401k is an example of the former, while | | | | provide for their employees during retirement. |
| a traditional pension plan is an example of the | | | | Employees have much more control over their |
| latter. Each type offers different advantages and | | | | own money with a 401k. They can choose how |
| disadvantages. It is important to understand these | | | | much to contribute and how their money will be |
| in order to get the most out of your retirement | | | | invested. There is a risk that participants will not |
| plan or pension. | | | | contribute enough into their 401k to enjoy a |
| Participants in defined contribution plans such as | | | | comfortable retirement. With a pension, which |
| the 401k are responsible for making their own | | | | depends upon the employer and not the |
| contributions into the plan. Their employer may | | | | employee, the participant benefits during their |
| also make contributions. The money that is placed | | | | retirement without having to invest any of their |
| in the plan will be invested so that it grows and | | | | own money. There are still risks involved, |
| can provide for the participant during their | | | | however, since pension funds can fail and their |
| retirement. These types of plans depend upon the | | | | success is dependent upon the investment |
| success of the investments. | | | | choices made by their employer. This dependence |
| A defined benefit plan does not rely on | | | | on the employer also means that it is necessary |
| contributions. The employee does not have to | | | | for the participant to remain with the same |
| make contributions into the plan. Instead, the | | | | employer. A 401k plan can be transferred |
| amount that they receive from the pension will be | | | | between employers. |
| determined by how long they have been working | | | | |