In 1978, section 401(k) of the Internal Revenue Code authorized a new kind of defined contribution plan that allows the employee to make pre-tax contributions to the plan. In a defined contribution plan, the plan sets the amount of the contributions that an employer makes, not the benefit it will pay at retirement.

In a 401(k) plan, the employer sets up a special savings and investment account with an investment company, a bank trust dept, or an insurance company. The employee agrees to put part of his or her salary into the plan through automatic deductions each pay period. This money is deducted before the employee's paycheck is taxed, so that it remains untaxed until it is taken out of the plan, often years or even decades later.

Pension plans, an important tool often employed to strengthen business and reward the people who have helped make it a success. Pension plans creates a win-win situation for employer and the employee. Pension plans can be implemented in a variety of ways to balance out your company's portfolio.

Employers frequently match employee contributions up to a certain level, sometimes by as much as 100 percent, but are not required to do so. The money in the pernsion plans are invested into one or more funds provided in the plan according to choices made by the employee. The plans usually are intended to earn money over a very long period of time, which is much less risky than short-term investing.

Employees like 401(k) plans for several reasons. The tax deferral an obvious plus. Others popular features include the increased portability of this plan from one employer to another, the matching contributions, and the sense of control due to the ability to choose one's own investments.

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