|Quoting Centrair (Reply 7):|
I always wondered why they didn't have 401Ks. Many businesses offer these as a retirement option. Aren't they safer?
I was reading the release from the MX/ground negotiations. The MX/ground didn't want a 401K but wanted the current system. It just doesn't make sense to me.
401K plans are defined contribution plans that are much safer as there are seperate accounts in the individual employee's name generally held by a 3rd party financial institution. Many companies prefer the 401K and similar defined contribution plans as they are much cheaper than the defined benefit plans they are currently bound to by union contract.
The difference between plan types is clear when you look at the names.
Defined Contribution Plan: For every period worked, the company will contribute a given amount of money to your private retirement account (often matching your own pre-tax contributions to the same account). The employee keeps almost complete control over the account and how it is invested. When the employee leaves the company, the company's obligation to the former employee is finished.
Defined Benefit Plan: After a certain vesting period, the company agrees to pay a given % of an employees salary to him each month after retirement until the empolyee and any spouse the employee may have dies. Not a bad deal when most employees died at 67 or so years old. Very expensivew with people reaching retirement in their 50s and living into their 90s.