Understanding 401(a) Plans: Benefits and Key Differences

A 401a plan is a retirement product set up by an employer for use by employees. The employees may contribute their own funds, and the employer may match or contribute funds, similar to using a 401k. The main difference with the 401a plan is how the funds are distributed and how the accounts are set up.

Distribution of Funds

All 401a accounts are eventually paid out through a lump-sum payment, rollover or annuity. There is no periodic "distribution" arrangement like with a 401k. This can be a benefit or a fault, depending on the preferences of the account holder. An account holder who would like to handle their own investments in retirement, though, may prefer this model.

Flexibility in Account Set Up

An employer can set up nearly unlimited amounts of 401a plans. Each can have their own contribution, matching and eligibility schedule. This allows employers to present employees with unique incentives to receive benefits in a retirement account in exchange for their loyalty to a company. Employee retention increases with the addition of retirement benefits, and offering multiple increases in benefits the longer an employee stays with a company can help with retention of senior staff.