Employer-Sponsored Retirement Plans
There are two main types of employer-sponsored retirement plans: defined benefit and defined contribution. A defined benefit plan, such as a traditional pension plan, sets the amount that the employer will pay to workers upon their retirement. In defined contribution plans, the plan sets the amount of the contributions that an employer makes, not the benefit it will pay at retirement. In 1978, section 401(k) of the Internal Revenue Code authorized a new kind of defined contribution plan that allows the employee to make pre-tax contributions to the plan.
Understanding the 401(k) Plan
In a 401(k) plan, the employer sets up a special savings and investment account with an investment company, a bank trust department, or an insurance company. The employee agrees to put part of his or her salary into the plan through automatic deductions each pay period. This money is deducted before the employee’s paycheck is taxed, so that it remains untaxed until it is taken out of the plan, often years or even decades later.
Employers frequently match employee contributions up to a certain level, sometimes by as much as 100 percent, but are not required to do so. The money in the plan is invested into one or more funds provided in the plan according to choices made by the employee. The plans usually are intended to earn money over a very long period of time, which is much less risky than short-term investing.
Benefits of 401(k) Plans
Employees like 401(k) plans for several reasons. The tax deferral is an obvious plus. Other popular features include the increased portability of this plan from one employer to another, the matching contributions, and the sense of control due to the ability to choose one’s own investments.
From India, Gurgaon
Acknowledge(1)
Amend(0)
675There are two main types of employer-sponsored retirement plans: defined benefit and defined contribution. A defined benefit plan, such as a traditional pension plan, sets the amount that the employer will pay to workers upon their retirement. In defined contribution plans, the plan sets the amount of the contributions that an employer makes, not the benefit it will pay at retirement. In 1978, section 401(k) of the Internal Revenue Code authorized a new kind of defined contribution plan that allows the employee to make pre-tax contributions to the plan.
Understanding the 401(k) Plan
In a 401(k) plan, the employer sets up a special savings and investment account with an investment company, a bank trust department, or an insurance company. The employee agrees to put part of his or her salary into the plan through automatic deductions each pay period. This money is deducted before the employee’s paycheck is taxed, so that it remains untaxed until it is taken out of the plan, often years or even decades later.
Employers frequently match employee contributions up to a certain level, sometimes by as much as 100 percent, but are not required to do so. The money in the plan is invested into one or more funds provided in the plan according to choices made by the employee. The plans usually are intended to earn money over a very long period of time, which is much less risky than short-term investing.
Benefits of 401(k) Plans
Employees like 401(k) plans for several reasons. The tax deferral is an obvious plus. Other popular features include the increased portability of this plan from one employer to another, the matching contributions, and the sense of control due to the ability to choose one’s own investments.
From India, Gurgaon
Acknowledge(1)Amend(0)
401(k) plan is a retirement plan in the US that both employees can contribute to - it is pre-tax dollars, and also some companies match dollar to dollar a certain % of the amount. For example, the contribution limit for 2005 is $14,000 - the company will match up to 5% of the contribution into the 401(k) plan fund. So, an employee that contributes X amount of dollars, the company will match up to 5% of the person's salary into the plan, not exceeding the limits for that year - each year the limits generally increase.
401(k) plan is equal to RRSP plan in Canada, similar rules apply. Limits might differ in Canada. Also, employees can borrow against this if purchasing a house, etc., tax-free dollars. Hope this gives you some insight.
Rekha
From United States, Saint Louis
Acknowledge(1)Amend(0)
401(k) plan is equal to RRSP plan in Canada, similar rules apply. Limits might differ in Canada. Also, employees can borrow against this if purchasing a house, etc., tax-free dollars. Hope this gives you some insight.
Rekha
From United States, Saint Louis
Acknowledge(1)Amend(0)
If you work for a USA company and you are paid on the payroll (even if you live in India), you may be eligible to participate in a 401(k) plan. 401(k) is a code given by the IRS for a certain type of retirement plan. You need to research defined contribution plans available in India. You may have something similar.
Acknowledge(0)Amend(0)
Acknowledge(0)Amend(0)CiteHR is an AI-augmented HR knowledge and collaboration platform, enabling HR professionals to solve real-world challenges, validate decisions, and stay ahead through collective intelligence and machine-enhanced guidance. Join Our Platform.
Flexi Benefits Plan.doc
Flow Chart for Recruitment till retirement.xls