Are 401k plans better than traditonal company retirement plans ?

Question

Keep in mind that there's a lot of people who simply do not earn enough money to contribute any decent amount of money to their employers 401k plans. Having said that, what if a person works 30 years and can't contribute to an employers 401k plan, how will they live in their retirement years ?

Answer 1

NO, pension is by far the best. company paid retirement is very rare these days, often the only places offering it are govt jobs, federal jobs, hospitals and airlines. This is a guaranteed paycheck every month for the rest of your life. If you do not put money into your 401K or when the money you put in runs out then you have to get a job. You are responsible for saving for your retirment. start young. I am 26 and I have saved about 17,000 in my 401K and 10,000 in savings bonds and IRA's. I only make 45,000/year. I have a house and a wife and a child. Make responsible decisions and you will be fine.

Answer 2

This is a debated question and it depends on a number of factors. A pension would typically be better if their is no 401k match at the company because if your company did not offer a 401k then you could still start an IRA and have the best of both worlds. a pension and an investment plan. Now if there is a company match depending on the dollar amount of the pension a matching 401k for a young guy with decent funds available would have way more potential thus would be better than a pension.

One nice thing about 401k's is you can retire at 59.5 and withdraw without penalty it also can be passed down to your kids upon death and not just to spouse like a pension. Also most pensions make you wait till 67 to collect the full benefit if you retire at 62 you will only receive 80% of the pension benefit. if you have a major expense or want to make a major purchase and rely on a pension only your monthly income is fixed with a 401k you could just withdraw the amount.

So as you can see they both have benefits pensions are gauranteed monthly payouts in retirement. 401k's have more potential and more lenience. but in reality a pension and a individual retirement account in retirement would kick some major a s s

Not to mention most people can afford to put away a few percent in a 401k that is all it takes.

Answer 3

That all depends on what kind of matching your employer does on the 401k plan. I don't buy the "can't contibute" bit especialy after 30 years. You should ALWAYS at the very least put in what your employer will match. It's free money. It's taken out BEFORE taxes. The amount that will be missing from your paycheck will be barely noticable. I'm almost certain there are things in your life that you could cut out for a day, week, and cover this missing amount for the entire month. A couple less soda's? A night of top ramen? There's really no excuse for not contributing to a 401k plan.

Face it, your retirement, especialy nowadays, is all up to you. Most of us won't get a free ride from our employers. You're lucky if you have both a 401k and a pension plan.

The 401k is the next best thing to making sure you will at least have something other than social security when you retire.

Answer 4

You are correct that some people simply do not earn enough to contribute but reality is that the same group of people wouldn't earn much of a benefit anyways.

Poster earlier posted a bunch of "facts" but in reality they are just hogwash from someone who doesn't know better. Here are the real facts.

Fact: If you're company goes bankrupt then the PBGC will step in and pay a pension upto a certain point. PBGC will NOT pay over and above that level so if your union negotiated a high end pension instead of annual pay increases then you are at risk. But if your pension is reasonable (ie 50% of pay) then you will likely still receive full pension from PBGC.

Fact: Return on pensions is irrelevent. The promise to pay is an amount on your final year(s) of pay. The amount that the pension earns only dictates how much the employer has to contribute and can deduct on it's taxes.

Fact: In order to maintain a pension equivalent to 75% of final pay, a 401k must have 10% of annual pay contributed and earn 8% annually. The average 401k participant doesn't reach either level.

Fact: Most companies that match limit the amount that they match to the first 6% of compensation. Anyone who says otherwise is blowing smoke. A match on the 15.5k limit would fail discrimination testing on 99.9% of the 401k's in America. Granted, a match is free money...but so is a pension!

Fact: Companies can't borrow from their pensions. Money that is in a pension has to STAY in a pension. Certainly companies can choose not to contribute to it if they pension is funded within a certain percentage of being considered fully funded but that's not borrowing. Think of it as not paying ahead on a mortgage when your finances might not allow you to. It might still benefit you to do so, but you are under no obligation.

Fact: while still employed at a company of a plan that is not being terminated....you can't rollover a pension asset. Sorry, again...anyone who tells you othewise is blowing smoke. But, if you're comparing...Nor can you rollover a 401k asset. So, if your employer has crappy investments inside their 401k or they don't match then you are stuck contributing only 4k into your IRA. Difference? NONE!!!

The bad thing about a pension is that it's backloaded. You have to work at a company for an extended period of time to get a decent benefit and the benefit is not required to be portable even after quitting. Given that the trend is to not be employed at a company for more than a few years at a time (I believe avg is 10) then pension is not for everyone or every industry. Is it better than a 401k? No...it's different. Apples and Oranges. Give me a pension and an IRA contribution anyday. Better yet, many employers with pensions have 401k's too! Give me both and I'm a happy camper.

Answer 5

Pension plans are going extinct for many reasons.
- There is a higher turnover in the job market than was common 20 yrs ago.
- Employers that went out of business left employees without anything.
- Many pension plans were hard to understand and people had trouble comparing them from company to company.

The 401k plans are becoming more common with employers either adding a set amount or doing matching contributions.
- You can roll the money over if you move to a new job.
- There are more choices with what type of investing you can do with a 401k (high or low risk)
- You can easily follow how much money you have and how much your employer is contributing.

Answer 6

I would say that yes, the 401k is better than the traditional retirement plan. Since you control the funds, you are able to control the level of risk that you are comfortable with. In traditional retirement plans, you had no control over the level of risk involved.

The case of someone who doesn't make enough money to contribute is probably flawed, simply because a person at such a job would probably not have been offered a regular retirement plan anyway.

Answer 7

Well if you can trust that the money will be there when you retire the retirement plans would normally be better for the person and more expensive for the company. And that is exactly why they are going away because the companies are about cutting costs to make profits. But on top of that the retirement plans only work for employees that are going to stay put at one company, and that is extremely rare.

Answer 8

The traditional company retirement plan is becoming like the dodo bird.
They were plentiful, but they're rare now.
A 401 is becoming the only thing people have any more. Raly, ther's no choice but to contribute at least something. Also, keerp in mind, some companies match your contributions up to a certain percentage.
And your contribution is not subject to federal withholding tax ,.

Answer 9

In this day and age, this is not a debatable question at all....the 401k is better.
Fact-if the company that you work for goes bankrupt, you do not get your pension. (example, steel companies like Bethlehem steel, guys worked there for 30 years with nothing, US Airways is another example.) YOUR 401K IS YOUR MONEY, NOBODY CAN TAKE THAT AWAY FROM YOU.
Fact-the rate of return on Pension assets at todays rate is 3% vs. investing in a diversified pool of investments which over the long run have a higher rate of return.
Fact-alot of companies match you 50% up to your 2007 annual limit of 15, 500k a year or 20,500 a year if you are 50 or older. Where are you going to get a rate of return like that?
Fact-most companies, health care in specific, use your pension assets for their immediate needs. When the stock market crashed alot of companies had to borrow money to pay their ever growing retirement employees because the money wasn't in the fund to be had.

Food for thought-alot of companies are now letting you roll over part of your pension to an IRA, while you still work there. Goverment pressured companies to do this, but the companies don't want you to know that. Even the HR people at the companies try to deter and tell their employees it can't be done, but it can. I had 16 clients at US Airways we did that with and they saved their pension. Also, the old Westinghouse company that is now Emerson. These were people that still work there, didn't retire....both HR offices said it couldn't be done then later admitted they really aren't suppossed to be talking about it.

Thought-if all the people in companies with Pensions knew they could roll over their money and invest it the way they see fit, what would happen to all the companies that have to pay that money out? Alot would be in financial distress.

DIGDOWND-I FEEL BAD FOR YOU THAT YOUR FACTS ARE SO WRONG!!! I AM GLAD YOU ARE NOT A FINANCIAL PLANNER!!! WE WOULD ALL BE IN TROUBLE. WHAT DO YOU SAY TO THE WORKERS OF COMPANIES THAT WENT BANKRUPT AND DIDN'T HAVE THEIR PENSION INSURED? NOT ALL PENSIONS ARE INSURED. AND I WISH I COULD CONTRIBUTE 10% OF MY ANNUAL SALARY, THERE ARE LIMITS TO THE PLAN MY FRIEND. AND LASTLY, YOU TELL THE CLIENTS THAT WERE ABLE TO ROLL PART OF THEIR PENSION IN LUMP SUM OVER TO THEIR IRA IT CAN'T BE DONE.

I HAVE STUDIED THIS AREA FOR 15 YEARS. MOST OF YOUR FACTS ARE COMING FROM THE TEACHER'S UNION HANDBOOK. EVERY PLAN AND LAW IS DIFFERENT AND I WISH WE LIVED IN A WORLD OF PENSION GUARANTEES..........
"If I Change Jobs, What Can I Do With My Pension Plan?

If you have been at your company long enough and you terminate your employment PRIOR to retirement age, you might have the option to receive your accrued Cash Benefit Plan assets in a lump sum. (Traditional defined benefit pension plans do not offer this feature as frequently.) If you receive a lump sum distribution, that distribution generally can be rolled into an IRA or another employer's plan if that plan accepts rollovers. An IRA might be your best choice, since it will likely offer more investment options and flexibility.

Answer 10

401k hands down better.

A pension is only a good deal if you stay at a company a long time. In the modern economy, people change jobs, often.

A pension is not an asset you own. If the company goes bankrupt, you can lose it - talk to the airline pilots at US Air and Delta.