401k plan

Employer-funded pensions are usually divided into two broad categories: defined benefit (DB) and defined contribution (DC). In a DB plan, the employer promises a defined amount to retirees to pay for meeting certain eligibility criteria. In other words, the plan defines the service received to be. In its typical form, a DB plan pays a lifetime monthly benefit for retirees to meet
certain age and service requirements. The services will be available in general, the level of service and based on final average salary. Employees can reasonably on a known and expected performance level dependent, although limited protection against inflation after the separation in the rule and / or insecure. The plan sponsor may also provide an alternative lump-sum cash-out "of the claim. Until relatively recently, the DB was the dominant form of employer-sponsored retirement provision program.
In DC plans, the plan defines the contributions to make an employer might not have the benefit that is received at retirement.The setting employee receives the proceeds in a current or deferred lump sum or pension. As the benefit is not defined, the results are not retired in advance.
In 1978, approved Section 401k of the Internal Revenue Code to use a new type of defined contribution plan that may make the employee pre-tax contributions to the plan.