National Pension Plan vs. 401(k) Plans
Click on any question below that interests you to reveal the answer:
What are some of the advantages of the National Pension Plan compared to a 401(k) plan?
Some advantages of the National Pension Plan are that benefits are guaranteed by the Pension Benefit Guaranty Corp. (PBGC) and are payable for your lifetime. Contributions are made by your employer, not you, and the Fund assumes the full risk for providing benefits. In addition, given the same assumptions in terms of contributions and earnings, the National Pension Plan may provide higher benefits.
If the National Pension Plan is better, why are 401(k) plans so popular?
401(k) plans are popular with employers because they shift the expense and investment risk to employees. They are popular with employees because 1) payroll deductions are made on a before-tax basis (which allows employees to defer paying taxes on the portion they contribute to the plan); 2) they often offer a choice of investment options and 3) account balances are generally accessible either through loans, hardship withdrawals or in-service withdrawals, or at the time an employee leaves the employer.
Can I be in both the National Pension Plan and a 401(k) plan?
Yes. The IAM National Pension Fund also offers the IAM National 401(k) Plan to participants who have negotiated the National Pension Plan into their collective bargaining agreement. Also, if your employer offers a defined benefit plan to collectively bargained employees, you can participate in the IAM National 401(k) Plan.
Can I be in the National Pension Plan and contribute to an IRA (Individual Retirement Account)?
Yes. However, you should consult with a tax advisor, as some tax benefits of an IRA are limited if you're also in a pension plan.
Why is the National Pension Plan so valuable?
For four good reasons: 1) contributions are made by the employer and not the employee; 2) since the benefits are guaranteed by the PBGC, there is limited risk to you when you participate in the plan; 3) the benefits are solely for retirement and cannot be used for any other purpose; and 4) benefit amounts are known and are paid for your lifetime.