A better apartment, saving for a new car, maybe child care expenses? Sure. Retirement? Not so much.
Most younger workers just beginning their careers aren’t likely thinking too much about retirement. Yet, that doesn’t mean they’re not aware of the importance of planning, and research shows they’re making career decisions that reflect that. In fact, Fortune reports 93% of employees seriously consider a company’s retirement benefits specifically when it comes time to choose their next job.
And while most people are at least familiar with a traditional 401(k) plan, they may not be as familiar with a defined benefit plan (sometimes called a pension), where an employer guarantees a specific payout based on salary history and years of service. (A pension plan is a type of defined benefit plan that provides retirees with regular payments for life.) The lack of awareness is understandable, however, as only about 10% of private U.S. employers still offer traditional pension plans these days.
So, what are the main differences between a defined benefit plan like RetireMint and a traditional 401(k)? By better understanding the strengths of both retirement vehicles, the better you can begin planning for your own financial future.
401(k)
Created when Congress passed the Revenue Act of 1978, the 401(k) was created to give employees a tax-free mechanism to defer compensation from bonuses and stock options. Four years later, the IRS expanded the tool to include salary deductions, which really kick-started its widespread popularity over the ensuing decades.
Some key attributes of a 401(k) include:
- 401(k) plans offer high contribution limits (which have increased to $23,500 in 2025), with extra contributions allowed for workers nearing retirement. A defined benefit plan does not allow for this flexibility.
- They are employee-funded, which means employees contribute pre-tax earnings. Many company 401(k) plans generously match participant contributions, effectively boosting their employees’ retirement funds.
- 401(k) plan participants have the flexibility to choose where their funds are invested in the stock market.
- Many 401(k) plans provide the option for employees to borrow money against their accounts, often at a lower interest rate than commercial banking institutions offer.
Defined Benefit Plan
When most people refer to a “pension,” they typically mean a defined benefit plan with guaranteed lifelong payments — a “paycheck for life.” While pensions have become increasingly rare, they’re much more stable and predictable than their 401(k) counterparts. In fact, the Economic Policy Institute has called the 401(k) “a poor substitute” for a traditional pension plan.
Some key attributes of a defined benefit plan (like RetireMint) include:
- Participants are entitled to a lifetime monthly benefit from RetireMint. Unlike a 401(k), participants will not outlive RetireMint and will instead receive a paycheck for life after they stop working.
- A defined benefit plan doesn’t fluctuate with the market and isn’t impacted by the market’s ups and downs.
- A pension’s assets are managed by fiduciaries for the benefit of all participants and the plan’s integrity. With 401(k) plans, participants are responsible for making their own investment decisions — a prospect that can be daunting, even for financially savvy participants.
- The risk is shifted to the employer: If the investments underperform, for example, the company must still provide the promised benefits to employees and retirees.
Supercharge your retirement savings
The path to retirement can often be thought of as a three-legged stool, combining Social Security income, a defined benefit plan (like RetireMint) and a 401(k) plan. Maintaining both types of plans provides a tremendous advantage for participants and allows you and your family to better prepare for what lies ahead.
After all, you might only be focused on saving for that new car right now, but it’s never too early to start thinking about retirement!
