A 401(k) plan is a retirement savings plan sponsored by an employer. It allows employees to save and invest a piece of their pre-tax income for retirement. 401(k) plans give the employee flexibility and control over how their money is invested. While the most popular investment options tend to be target date funds, most plans offer a multitude of mutual funds comprised of stocks, bonds, and money market investments.
A 403(b) plan is similar to a 401(k) plan (an investment of portion of pre-tax wages), but it is offered to employees of public schools, hospitals, nonprofits and religious organizations. A 403(b) can be any one of the following account types: a tax sheltered annuity offered by an insurance company; a custodial retirement account held at a registered investment company; or a retirement income account. The employer chooses the financial institution where the accounts are maintained, which in turn determines the type of account offered to employees.
Defined benefit plans offer employees a pre-determined monthly retirement pension based on a formula that typically involves length of service, earnings and age, rather than depending directly on returns on investments. This type of plan may include contributions by the employer, the employee, or both. Although the shift has been to defined contribution plans (401(k) and profit sharing plans), changes in tax laws have brought renewed interest to defined benefits plans.
Executive carve-outs are extended to upper management and typically feature more enhanced coverage than what is offered to a company’s non-executive employees. Options may include life, disability income and long-term care insurance.
Executive ages and salaries are often higher than the rest of the staff. This may have a direct effect on the pricing for the entire group’s plan. By “carving out” the top executives and offering them a customized package, costs to the employees stay low and the executives are rewarded with more robust coverages that are more in line with their needs.
Group life insurance is a benefit typically offered by an employer that covers all participating employees or members of a labor union. Since an employer purchases this benefit on a wholesale basis, the coverage can cost much less than if the employee purchased a policy on their own. Group life insurance is a benefit that helps employees protect their families and loved ones at little to no cost for the employee.
Group Long Term Disability Insurance helps replace a portion of an employee’s income (typically 50-60%) during an extended period of time following a disabling event due to accident or illness. By providing a steady stream of income while the employee is out of work, it can help them meet their monthly financial obligations.