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Discuss: Pension Plans and 401K

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How does a pension plan differ from a 401K plan? As an employee, would you rather have a pension plan or a 401K plan? Why? If you were an employer, would your decision change? Why or why not?

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Solution Summary

This solution is comprised of a discussion regarding how pension plans differ from 401K plans. These two plans are compared and contrasted in about 270 words.

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A 401(K) plan (like 403(b) plans, employee stock ownership plans and profit sharing plans) is a defined contribution plan. A defined contribution plan provides an individual account for each participant. The benefits are based on the amount contributed and are also affected by income, expenses, gains and loses.

A defined benefit plan (pension plan) promises the participant a specific monthly benefit at retirement and may state this as an exact dollar amount. ...

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