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Computerized Investing > Third Quarter 2010

Help With 401(k)s and 403(b)s

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by CI Staff

Traditional pensions (defined-benefit plans) have gradually been replaced among corporations by 401(k) and 403(b) retirement plans. These are called defined-contribution plans because the employee elects to set aside tax-deferred income for retirement on a regular basis. A 401(k) plan is offered by corporations to its employees, while a 403(b) is the version offered by nonprofit organizations, such as universities and charitable organizations.

This change has moved the responsibility of retirement planning and saving from the company to the employee. For many people, their defined-contribution plan will be their only source of retirement income outside of Social Security payments (assuming the system remain solvent). Studies have shown that many workers do not take full advantage of these retirement plans. Some employees fail to contribute enough to maximize their employer’s matching programs, and others fail to make contributions at all.

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Discussion

Chris from NJ posted over 3 years ago:

Recently I've read a few books/articles that advise against "all the eggs in one basket". Even advice like "pay the taxes and control your own money". With employer matching, the 50% is hard to pass up. Should we diversify beyond an employer sponsored and matching 401(K)? Is it a put some in, and invest some elsewhere situation? Horror stories of pension defaults and reductions abound with corporations applying Insurance Company annuities to funds and one or both go out of business.


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