ABSTRACT
This chapter discusses the important differences between pension and retirement plans and provides information on related topics such as normal retirement age, vesting requirements, 401(k) plans, and the role of individual retirement account. All private employer–sponsored retirement benefit plans are exclusively governed by federal law, the Employee Retirement Insurance Security Act enacted in 1974, commonly referred to as Employee Retirement Insurance Security Act. Defined benefit plans are pension plans that promise participating employees a specified monthly pension benefit at retirement. Retirement plans are quite different from pension plans. Called defined contribution plans, they do not promise any set amount of benefits. Payment options under retirement plans vary from employer to employer. The defined benefit plan pension is clearly most beneficial to employees who have only one or two employers in their lifetime of work. Employers are not required to create or operate pension or retirement plans, and about one-half of all employers do not.
