What does a 401(k) plan typically provide to its participants?

A 401(k) plan is primarily designed as a retirement savings vehicle, allowing employees to contribute a portion of their salary on a pre-tax basis, which is classified as salary deferral contributions. This means that participants can allocate a portion of their earnings into the plan, often receiving tax benefits for doing so, as these contributions are made before income tax is applied.

The contributions accumulate and can grow through investments over time, providing participants with a means to save for retirement. Additionally, many employers match a percentage of employee contributions, further enhancing retirement savings. This contribution mechanism is a critical feature of 401(k) plans, promoting personal savings for retirement while encouraging employee participation.

In contrast, guaranteed retirement income is not typically provided by a 401(k) plan, as the retirement income is dependent on the performance of the investments made with the contributions. Health insurance benefits and life insurance coverage are also not features of a 401(k) plan; rather, they are part of different employer-sponsored benefits that address health needs and life coverage, respectively. Therefore, salary deferral contributions are the defining characteristic of a 401(k) plan's provision to its participants.