401k Pension Plans for businesses and Individuals

Defined contribution plans and defined benefit plans.


Defined Contribution Plans

A defined contribution plan is a retirement plan in which the employee and/or the employer  contribute to the employee’s individual account under the plan. The  amount in the account at distribution includes the contributions and  investment gains or losses, minus any investment and administrative  fees. Generally, the contributions and earnings are not taxed until  distribution. The value of the account will change based on  contributions and the value and performance of the investments..  Examples of defined contribution plans include 401(k) plans, 403(b)  plans, employee stock ownership plans and profit-sharing plans. 

Defined Benefit Plans

 a defined benefit plan, also known as a traditional pension plan, promises the participant a  specified monthly benefit at retirement. Often, the benefit is based on  factors such as the participant’s salary, age and the number of years he  or she worked for the employer. The plan may state this promised  benefit as an exact dollar amount, such as $100 per month at retirement.  Or, more commonly, it may calculate a benefit through a plan formula  that considers such factors as salary and service.