A 401(a) savings plan is a money-purchasing plan created by an employer and contributed to by an employee, the employer or both, according to Investopedia. The employer decides on the vesting schedule, employee eligibility and whether contributions are dollar- or percentage-based. One of the main reasons employers offer 401(a) savings plans is to give employees an incentive to remain with the company.
Methods used to withdraw funds from a 401(a) savings plan include annuity, lump-sum payment and rollovers to qualifying plans, notes Investopedia. Depending on the employer, employees may not have a choice but to participate in the savings plan and accept the mandatory salary deferrals and all other contributions, according to The Nest. One advantage of forced participation is that employees are guaranteed a specific level of savings upon retirement.
One of the biggest differences between a 401(k) plan and a 401(a) plan is that 401(k) plans are common to private and corporate employers, while 401(a) plans are mainly used by government employers, according to The Nest. A 401(a) plan is also only made available to the most essential employees, while 401(k) plans are available to everyone. A 401(a) plan might also include investment options such as those made available in 401(k) plans, making it essential that employees carefully look over the plan to evaluate their options.