What is a retirement plan? 401k?

Retirement plans are employee benefit plans that are set up or maintained by an employer or a union that will provide income after the individual worker retires. There are different types of plans, including the 401(k) plan, and the defined benefit plan.


Most people who work in the private sector are covered by ERISA, which is the Employee Retirement Income Security Act. ERISA provides some protections for those who participate in retirement plans. In addition, the individuals who the plans have to meet conduct standards under the responsibilities that are specified under the law.


The retirement plan set up by your employer is an essential part of your financial
security in the future. It's important that employees understand how their plans
work, and what benefits they will receive. Just as you keep track of bank accounts,
you should keep track of your retirement benefits.

The people who are responsible for the oversight and management of retirement plans
have to follow certain rules that cover the operation of the plans, handling the
money in the plan, and watching over the firms that are hired to manage the money.
In addition, you should also understand and monitor your benefits.
There are two major types of retirement plans, and they are described as defined
contribution and defined benefit.

A defined benefit plan is funded by your employer, and it promises you a monthly dollar amount upon your retirement. Plans like this may state the benefit as a dollar amount, or may calculate it through various formulas.


A defined contribution plan doesn't tell you that you'll get a specific amount
when you retire. Instead, you or your employer put money toward your account and
then these monies are invested. Most of the time, you are responsible for choosing
how the monies are invested. In some plans, your employer will match your contribu-
tions.

Employers are offering you a benefit when they open retirement plans for their
employees. Federal law does not require any employers to offer a plan, and the
law also does not prohibit them from doing away with a plan they already have. Of
course, if you have monies invested in a plan that your company terminates, the
funds you put it will be available for withdrawal, or for rollover to a different
401-k from another company.


The PBGC - Pension Benefit Guaranty Corporation - guarantees that certain retirement
benefits will be paid to employees or retirees in most plans, if the plan is termin-
ated and not enough money s left to pay all of its promised benefits.


Check with your Human Resources or Benefits Department at your company, to find out
what type of retirement plan your company offers, and which one you signed up for
when you hired on. Then keep an eye on the accounts so you can make sure that the
money will be there for your retirement.

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