These plans are great means to build sizeable retirement accounts and employees should take advantage of them.
Investments available under 401(k)s and related plans largely depend on what is offered under each employer’s plan. Usually, investments in money market funds, bond funds, and stock mutual funds are available. The plan’s value will depend both on what’s contributed and the performance of investments selected. Typically, a list of money market and mutual funds will be available. These plans will often not contain specialized funds, such as country or industry funds, but rather broader investments.
Employee Stock Ownership Plan Pros and Cons
Some employers also offer Employee Stock Ownership Plans (ESOPs), either allowing employees to purchase stocks of a company at a discount, or the shares are contributed by the employer, subject to a vesting period.
The benefit is that employees get shares at cheaper prices when buying, or they get these shares for free.
However, investing too much into ESOP plans can be risky. If employer goes bankrupt, you not only lose your job, but may end up losing your ESOP holdings. Always diversify your retirement plan.
Related articles on this site:
Employer-sponsored plans typically rely on tax-deductible contributions