Most of us are all too familiar with what a 401k plan is. Usually within the first few days of starting a new job someone from human resources sits down with you to explain your benefits package. The 401k retirement plan is a huge part of that conversation. If you are 45 years old or younger, you may not even remember a time when there was no 401k retirement plan.

Would you believe that the 401k plan was birthed in 1978? It was named after a provision in the Revenue Act of 1978 that was titled, Internal Revenue Code (IRC) Sec. 401(k). This code became law and went into effect on January 1, 1980. Prior to that, companies offered pension plans. These were typically steady income payments made in the form of a guaranteed annuity to a retired or disabled employee.

In 1979 several companies began the process of adopting a 401k plan. Some of the first companies to officially begin the 401k retirement operations in 1982 were: Johnson & Johnson, FMC, PepsiCo, JC Penney, Honeywell, Savannah Foods & Industries, Hughes Aircraft Company, and Coates, Herfurth & England (a San Francisco based consulting firm). These companies were the pioneer leaders of what soon became a widely accepted form of a retirement investment vehicle, the 401k.

The 401k retirement plan was originally intended for executives, however it proved extremely popular with workers at all levels because it had higher yearly contribution limits than the Individual Retirement Account (IRA). The 401k retirement plan usually came with a company match, and provided greater flexibility in some ways than the IRA. It often provided the option to borrow from in the form of a loan and, if applicable, offered the employer's stock as an investment choice.

However, the primary reason for the explosion of 401k retirement plans was it was cheaper for employers to maintain than offer a pension for every retired worker. With a 401k retirement plan, instead of required pension contributions for every employee, the employer only had to pay plan administration and support costs. In addition, some or all of the plan administration costs could be passed on to plan participants (employees). Companies also had the option of electing to match or not match employee contributions. In years with strong profits, employers could make matching or profit sharing contributions, and reduce or eliminate them in poor years.

As you can see, the 401k retirement plan created a greater deal of flexibility for the employer. It allowed the employer to predict the cost of a plan. Because of birth rate drops and increased life expectancies, there is and will continue to be an ever larger portion of elderly people who are retired workers. Companies quickly realized that by implementing a 401k retirement plan, they could avoid the strain and potential financial collapse that pension plans would eventually cause.

The beauty of today's 401k retirement plan is that it allows a worker to save for retirement while deferring income taxes on the saved money and earnings until withdrawal. In addition, employers may contribute money to its employees' accounts in the form of "company match" contributions. These "company match" contributions are incentives to get employees to participate in the plan. These incentives typically match anywhere from $0.25 to $1.00 for every dollar the employee invests. There is normally a cap on how much is matched based on a percentage of an employee's salary.

Assets can grow even bigger because of the options to invest in a wide variety of investment vehicles that are not exclusive to stocks, bonds, mutual funds, guaranteed investment contracts (GIC's) and other investments. Unfortunately, many workers today do not take advantage of their company's 401k retirement plan. Many miss out on opportunities to earn a guaranteed 25% - 100% investment return based simply on the "company match" contributions.

This article has been provided to you by Tony Bass, National Financial Wealth Strategist, for Bass Financial Solutions, Inc. If you would like to receive "Learning the Secrets to Maximizing Your 401(k) Rollover and How You Can receive 13.68% Guaranteed" please visit rollovermoney.info

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