Yeah, a pension is better than a 401k plan … except if you are not employed with the employer long enough to be vested or accumulate sufficient service. Pensions were designed at a time when employment was more stable and long term.
I have a pension that provides me with a comfortable retirement, but I worked for one company for nearly fifty years and during those years I likely traded higher salaries with other employers for that future pension.
True, an employee with a pension doesn’t decide on the investments, but so what? While loans and early withdrawals are generally not available, there are plans that permit loans.
In any case, loans and early withdrawals are detrimental to retirement planning.
While the article below says control over investments and investing strategy is an advantage of a 401k, for most workers the opposite is true. Unfortunately, with few exceptions workers cannot or do not effectively manage their 401k investments.
A pension isn’t necessarily better than a 401(k). It may seem more advantageous on the surface — hey, you don’t have to save any of your own money to retire comfortably and you have a steady income — but there are trade-offs.
An employee with a traditional pension plan doesn’t get to decide where their future retirement funds get invested today. They also can’t take loans or early withdrawals from the plan.
Someone with a 401(k) has full control over their investment choices and can fit them into their overall investment strategy, and has the power to draw on their savings before retirement if needed. If you don’t manage risk well and your interest in financial markets is low, you might think a pension plan sounds like a better deal. The opposite could be true, too.
Also, traditional pensions aren’t portable. If you leave your job before your pension vests, you’ll never see the money. With a 401(k), you get to keep your contributions no matter when you leave.