401(k) Plan — the most common type of defined contribution retirement plan, in which
employees choose to defer part of their compensation. Under the typical 401(k),
employees contribute anywhere from 1 percent to 15 percent of their pre-tax
annual salary each year to the plan. In addition to this amount, many employers
will match the employee's contribution, such as 50 percent of up to 6
percent of the employee's contribution. For example, if an employee
contributes 6 percent of his or her salary to the 401(k) plan, the employer
will contribute an additional 3 percent so that the employee will have saved a
total of 9 percent of his or her annual salary (i.e., 6 percent contribution,
plus 3 percent employer match). There are annual maximum amounts that employees
can contribute as well as distribution restrictions prior to age 59.5.