A 401(k) is a feature of a qualified profit-sharing plan that allows employees to contribute a portion of their wages to individual accounts. It’s among the most popular employer-sponsored retirement plans, as millions of workers depend on the money they save in this plan to provide for their retirement years.
A 403(b), also known as a tax-sheltered annuity, is a retirement plan for specific employees of public schools and tax-exempt organizations. These plans can invest in either annuities or mutual funds and are comparable to those found in a 401(k) plan.
A cash balance plan is a pension plan under which an employer credits a participant’s account with a set percentage of his or her yearly compensation. The plan’s funding limits, funding requirements, and investment risk are based on defined-benefit requirements: as changes in the portfolio do not affect the final benefits to be received by the participant upon retirement or termination, the company solely bears all ownership of profits and losses in the portfolio.
Defined benefit plans provide a fixed, pre-established benefit for employees at retirement. Employees often value the fixed benefit provided by this type of plan. On the employer side, businesses can generally contribute – and therefore deduct – more each year than in defined contribution plans.