401 (k) Plans




Derived from the section of the federal tax code, 401 (k) plans let employees keep aside a percentage of salary which is tax-free every year. These are very popular among employees as 401 (k) plans allow employers to essentially pay their workers more without charging tax on that income. And also, this plan is quite popular between employers because most of their contribution comes from the side of employees and not the organization.
401 (k) plans are set up, managed and governed by The Employee Retirement Income Security Act of 1974 (ERISA). There are a lot of responsibilities tagged along with setting a 401 (k) plan. For example, employers must decide the investment options from which the employees can choose from and then monitor the performance of these investments as well as the service provided by whomever is administering the plan. ERISA here, stands in high position to make sure that fees charged for the plan are always “reasonable”.
The challenges of 401 (k) plans include firstly, that the plan member must bear all the risk associated with the investment. The amount of money left in the fund during the retirement of the member is what he/she will receive as pension.


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