From the course: Finance and Accounting Tips

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Pensions

Pensions

From the course: Finance and Accounting Tips

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Pensions

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- A 401(k) is a common form of what is called a defined contribution retirement plan. It is called a defined contribution plan because the employer defines the amount that will be contributed to the plan. An employer may contribute a fixed amount each month to an employee's 401(k), or they may match the employee's contribution to the plan up to a certain cap. Either way, the employer contributes to the employee's 401(k) retirement plan and then the employer is off the hook. Their only obligation is to make the agreed-upon contribution. The risks associated with how much of that money will be there upon retirement lies 100% with the employee. The amount will depend on how long until retirement, what types of investments are made with the contributions, and whether any amounts are withdrawn before retirement. These defined contribution plans are the rule nowadays for two reasons. First, employees change jobs a lot, and their 401(k) can go with them from job to job. Employees like that…

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