How Does a 401(a) Work?


Quick Answer

A 401(a) is a retirement plan mainly used by education and government industries for specific employees that has contribution levels and amounts set by the employer, according to Demand Media. Usually, the employee has no say in how much can be contributed to a 401(a) account.

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Full Answer

Besides being a type of retirement investment, 401(a) plans are used as an incentive for vital employees to remain with an education or government employer, notes Demand Media. The employer has the option of making contributions to an employee's account, and the employer can also make employee 401(a) contributions mandatory.

Employees have a variety of options for investing in their retirement with a 401(a) plan, according to Demand Media. Individuals should thoroughly review investment options and plan materials to understand everything that's included in the account. A 401(a) plan is more restrictive than a standard 401(k) plan because the employer has control over the savings amounts as well as the investment options. Salary deferrals and other account contributions can be mandatory, which forces employees to contribute to the plan whether they want to or not. A benefit of a 401(a) retirement plan is that the employee is guaranteed a specific amount of retirement savings.

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