401(a) vs. 401(k): What’s the Difference? [Video]

The two primary types of defined contribution retirement savings plans offered by employers are 401(k) and 401(a) plans. They take their names from Section 401 of the United States Internal Revenue Code, which defines them.

The principal differences between a 401(a) plan and a 401(k) plan are first in the types of employers that offer them and then in several critical provisions regarding contributions and investment choices.

A 401(a) plan is generally offered by government agencies, educational institutions, and nonprofit organizations rather than by corporations. These plans are usually custom-designed and can be offered to key employees as an added incentive to stay with the organization. The employer usually sets the employee contribution amounts, and the employer is also required to contribute to the plan. Contributions can be either pre-or post-tax.

Because the sponsoring employer establishes the contribution and vestingschedules in a 401(a), these plans can be set up in ways that encourage employees to stay. If employees …