What is a Pension? Do You Have One?

The phrase “pension benefits” has come up a lot in recent weeks, especially during the negotiations between the United Auto Workers union and the “big three” automotive manufacturers, narrowly avoiding a strike. 

But for the majority of private-sector U.S. workers, pensions seem to have disappeared a long time ago. Pensions have been phased out, but we do still have employer-issued plans such as 401(k)s. There continues to be confusion about the differences between 401(k) plans and pensions. No, they aren’t the same thing, and here’s the big difference: 

With a traditional pension, the employer is the one responsible for funding it. They invest and manage retirement funds for their workers, who are then set to receive guaranteed monthly checks for the rest of their lives after they retire. With a 401(k), however, both the employer and employee could contribute; your employer may choose to match contributions, but you aren’t guaranteed to receive payments for life. 

For this reason, many workers choose to use those 401(k) funds to instead purchase an annuity. An annuity, unlike a 401(k), allows you to receive a guaranteed (backed by the claims-paying ability of the carrier) string of payments for life. 

If you’d like to use your 401(k) funds this way, reach out to us: We can discuss it with you. We’re always here to help! 

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