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Contemporary employee benefits systems have given rise to the 401k, a relatively new kid on the pension block.
The Revenue Act of 1978 included a provision that became Internal Revenue Code (IRC) Sec. 401k, for which the plan is named. The 401k is a defined contribution plan offered by an employer to its employees.
Employees are allowed to set aside tax-deferred income for retirement purposes. In some cases employers will match their contribution, either fully or fractionally. In the standard 401k, employees are not taxed on the portion of income they elect to contribute.
The law went into effect on Jan. 1, 1980. By the time full regulations were issued in November of 1981, nearly half of all large American firms were either offering a 401k plan to their employees or had such plans under consideration. Since then, the 401k has been the fastest growing type of retirement plan in the United States.
Topic: The 401k
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