What is the basic difference between a pension and a 401k?

A pension is a defined-benefit plan where your employer guarantees a fixed monthly income for life, while a 401k is a defined-contribution plan where you and your employer contribute to an individual investment account that you manage.

Which is better for retirement income, a pension or a 401k?

A pension is generally better for predictable, guaranteed lifetime income because the employer bears the investment risk, whereas a 401k offers more flexibility and control but places the entire investment and longevity risk on you.

Is a pension safer than a 401k?

Yes, a pension is typically safer because it is insured by the Pension Benefit Guaranty Corporation and backed by your employer, whereas a 401k is subject to market volatility and can lose value based on your investment choices.

Can you have both a pension and a 401k at the same time?

Yes, you can have both a pension and a 401k simultaneously if your employer offers both plans, allowing you to build a guaranteed income stream from the pension while saving additional tax-advantaged money in your 401k.

Can I switch my pension to a 401k?

Yes, you can switch your pension to a 401k through a lump-sum distribution or a rollover, but this is a permanent decision that transfers the investment risk and longevity risk entirely onto you.

What happens to my pension if I leave my job before retirement?

Your pension benefits are typically frozen at your current accrued amount and may pay a smaller amount at retirement, whereas your 401k balance remains fully yours and can be rolled over into an IRA or a new employer's plan.

Who bears the investment risk in a pension versus a 401k?

Your employer bears the investment risk in a pension because they must fund your promised benefit, while you bear all the investment risk in a 401k since your account balance depends entirely on market performance.

Is a 401k more portable than a pension?

Yes, a 401k is much more portable than a pension because you can easily roll it into an IRA or new employer plan when you change jobs, whereas a pension is tied to your specific employer and its rules.

What is the most common mistake people make when comparing a pension and a 401k?

The most common mistake is focusing only on the account balance of a 401k and ignoring the pension's guaranteed lifetime income value, which can lead you to underestimate your total retirement security.

How do employer contributions differ between a pension and a 401k?

Employers fund a pension entirely with employer money based on your salary and years of service, while a 401k relies primarily on your own contributions, often with an optional employer match up to a certain percentage.

Difference Between

Difference Between Pension and 401k

Written byNex Virox Team

Editorial Team

Reviewed byVarshal Nirbhavane

Senior SEO & Organic Growth Professional · 5+ years

Published: August 28, 202619 min read

Quick answer

The main difference between Pension and 401k is that a pension guarantees a fixed monthly income for life, while a 401k depends on your contributions and investment performance. Pension is an employer-funded retirement plan with a defined benefit, while 401k is an employee-funded plan with a defined contribution.

Key takeaways

Core distinction: A pension guarantees retiree income, while a 401k depends on personal contributions and market performance.
How each works: Employers fund pensions via defined benefits, but workers fund 401k accounts with salary deferrals and employer matches.
Cost and risk: Pensions transfer investment risk to employers, whereas 401k participants personally bear all market volatility and losses.
Best-fit case: Choose pensions for predictable lifetime income, but select a 401k for job mobility and investment control.
Common mistake: Ignoring vesting rules costs employees thousands in unclaimed 401k matches or forfeited pension benefits annually.

Table of Contents18 sections

Difference Between Pension and 401k: Comparison Table

Aspect	Pension	401k
Definition	Employer-funded retirement plan paying a guaranteed monthly benefit for life after retirement.	Employee-funded retirement savings account with tax advantages, offered through an employer.
Purpose	Provides predictable lifetime income replacing a portion of pre-retirement wages for retired workers.	Builds a personal retirement nest egg through regular salary deferrals and investment growth.
Core Mechanism	Employer contributes to a pooled fund; benefits calculated by a formula based on salary and years.	Employee elects a deferral percentage; funds invest in chosen mutual funds or ETFs.
Funding Source	Employer bears the full cost of contributions, typically without any employee paycheck deduction.	Employee contributes pre-tax dollars; employer may optionally match a percentage of contributions.
Benefit Formula	Uses a set formula, often final average salary multiplied by years of service and a multiplier.	No formula; final balance depends entirely on total contributions plus cumulative investment returns.
Payout Type	Pays a fixed monthly annuity for life, with survivor options available for a spouse.	Pays a lump sum or periodic withdrawals; account owner controls the distribution schedule.
Investment Risk	Employer or plan sponsor assumes all investment risk; benefit stays fixed regardless of market performance.	Employee assumes full investment risk; account balance rises or falls with market conditions.
Longevity Risk	Eliminates longevity risk because payments continue for the retiree's entire lifetime.	Retiree bears longevity risk and may outlive savings if withdrawals exceed sustainable rates.
Portability	Rarely portable; leaving an employer usually means forfeiting future accruals or taking a lump sum.	Highly portable; account rolls over to an IRA or a new employer's 401k without tax penalties.
Vesting Schedule	Often requires 5 to 7 years of service before the employee owns the full accrued benefit.	Employee contributions vest immediately; employer match vests on a schedule, often 3 to 6 years.
Contribution Limits	No employee contribution limit; employer funds the benefit according to the plan formula.	Employee deferral capped at $23,500 in 2025, plus a $7,500 catch-up for those aged 50 and older.
Employer Cost	Employer pays the full contribution, often 5% to 15% of payroll, plus administrative and insurance costs.	Employer cost is optional; a typical match ranges from 3% to 6% of the employee's salary.
Predictability	Retirement income is fully predictable and known years in advance using the plan formula.	Retirement income is unpredictable because it depends on unknown future contribution rates and returns.
Market Exposure	No direct market exposure for the employee; the employer absorbs all investment gains and losses.	Direct market exposure; the employee selects funds and experiences daily market fluctuations.
Inflation Protection	Rarely includes automatic cost-of-living adjustments; fixed payments lose purchasing power over time.	No built-in inflation protection; retirees must invest in assets that historically outpace inflation.
Tax Treatment	Contributions are tax-deferred; retiree pays ordinary income tax on each monthly benefit payment.	Traditional contributions are pre-tax; Roth contributions are after-tax but qualified withdrawals are tax-free.
Withdrawal Flexibility	No withdrawal flexibility; funds are locked until retirement except for rare hardship or disability cases.	Allows loans and hardship withdrawals, but early distributions before age 59.5 incur a 10% penalty.
Loan Feature	No loan provision exists; participants cannot borrow against future pension benefits.	Permits borrowing up to $50,000 or 50% of the vested balance, repaid with interest to the account.
Death Benefit	Pays a survivor annuity to a spouse, typically 50% to 100% of the original benefit amount.	Entire account balance passes to named beneficiaries, free of probate and income-tax-free for heirs.
Administrative Burden	Employer handles all administration, actuarial calculations, and regulatory compliance internally.	Employee manages investment choices, rebalancing, and withdrawal planning; employer handles recordkeeping.
Plan Funding Status	Subject to Pension Benefit Guaranty Corporation insurance if underfunded; premiums paid by employer.	No federal insurance; account is individually owned and not protected by any government guarantee agency.
Regulatory Oversight	Governed by ERISA with strict funding rules, actuarial standards, and annual disclosure requirements.	Governed by ERISA but with lighter funding rules; fiduciary duties apply to plan sponsors and advisors.
Availability	Offered mainly by government agencies, unions, and legacy large corporations; now rare in private sector.	Offered by roughly 80% of large employers and many small businesses as the dominant retirement vehicle.
Employee Control	Employee has no control over investments, contribution levels, or the timing of benefit commencement.	Employee controls contribution rate, fund selection, and retirement withdrawal timing within IRS rules.
Typical User	Common among public school teachers, police officers, firefighters, and federal civil service workers.	Common among private-sector professionals, tech workers, and employees at startups and mid-size firms.
Cost to Employee	Zero direct cost; the employer pays all administrative fees, actuarial services, and investment management.	Employee pays expense ratios on funds, typically 0.05% to 1.0% of assets annually, plus possible admin fees.
Scalability	Poorly scalable for employers; open-ended liabilities grow with each year of service and pay raises.	Highly scalable for employers; costs are capped at the match percentage and shift to the employee.
Legacy Value	Limited legacy value; survivor benefits end at the spouse's death with no remaining estate asset.	Strong legacy value; unused balance transfers fully to heirs and can fund multiple generations.
Best Fit Scenario	Best for workers seeking guaranteed lifetime income with zero investment decisions and no market worry.	Best for mobile workers who want control, portability, and the ability to build a transferable nest egg.

What Is Pension?

Pension is a retirement plan where an employer funds and guarantees a fixed monthly payment for life after you retire. It exists to replace a portion of your working income so you can maintain financial stability without outliving your savings.

Definition of Pension

A pension is a defined-benefit retirement arrangement in which an employer promises a specified monthly benefit upon retirement, calculated using a formula based on salary history, years of service, and age. The employer bears the investment risk and contributes regularly to fund the promised liability.

Key Characteristics of Pension

Characteristic	What It Means in Practice
Defined benefit	Your monthly payout is fixed and pre-calculated; you know the exact amount before retiring.
Employer-funded	The company contributes the money; your personal paycheck deductions are usually minimal or none.
Guaranteed income	Payments last for your entire lifetime, protecting you against outliving your retirement assets.
Investment risk	The employer, not you, absorbs market losses and must make up shortfalls in funding.
Vesting period	You must work a set number of years, often five, before you legally own the pension benefit.
Formula-based payout	Benefit equals a multiplier times your average salary times your total years of service.
Spousal survivor option	You can elect a reduced payment so your spouse continues receiving income after your death.
No employee control	You cannot choose investments, adjust contribution levels, or access funds before retirement age.
PBGC insurance	The Pension Benefit Guaranty Corporation insures most private plans up to a statutory monthly limit.
Declining availability	Private-sector pensions have largely been replaced by 401k plans since the 1980s.

Common Examples of Pension

California Public Employees' Retirement System – the largest US public pension fund, covering state and local government workers.
United States Military Retirement – pays eligible veterans a monthly annuity after 20 years of active duty service.
General Motors hourly pension – a legacy defined-benefit plan for unionized auto workers hired before 2007.
New York State Teachers' Retirement System – provides formula-based lifetime annuities for public school educators.
British Airways Airways Pension Scheme – a large UK defined-benefit plan for airline pilots and cabin crew.
Federal Employees Retirement System – combines a basic pension benefit with Social Security and a Thrift Savings Plan.
Ontario Teachers' Pension Plan – a Canadian plan managing investments for over 300,000 active and retired teachers.
IBM US pension plan – a cash-balance hybrid that pays a lump-sum equivalent at retirement.
Chicago Police Pension Fund – a municipal plan offering service-based annuities to city law enforcement.
Shell Contributory Pension Fund – a closed UK scheme for long-tenured oil and gas employees.

Advantages and Limitations of Pension

Advantages	Limitations
Provides a predictable, stable monthly income that never runs out during your lifetime.	You have zero control over investment choices, so conservative returns may lag inflation over decades.
Shifts investment risk entirely to the employer, who must fund any market shortfalls.	Private-sector pensions are rare today; most new hires only get a 401k with no guaranteed payout.
Rewards long tenure with a higher formula-based benefit for each additional service year.	Leaving a job before full vesting means you forfeit the employer's contributions entirely.
Offers survivor benefits so a spouse continues receiving income after you die.	Payments are fixed at retirement; there is no cost-of-living adjustment in most private plans.
Requires no financial literacy or investment management effort from the employee.	You cannot access funds early for emergencies, medical bills, or a home purchase without penalties.
Backed by PBGC insurance, protecting benefits up to a legal cap if the company goes bankrupt.	PBGC coverage only applies to single-employer plans and caps monthly payouts well below high salaries.
Provides a higher replacement rate than a 401k for long-career employees with modest pay.	If your employer declares bankruptcy, promised benefits can be reduced to the PBGC maximum limit.
Simplifies retirement planning because your base income is known in advance.	You cannot pass unused pension assets to heirs; unused funds die with you unless a survivor option is chosen.
Encourages employee loyalty and reduces turnover for the sponsoring organization.	Many pension funds face severe underfunding, creating uncertainty about future benefit security.
Offers a lump-sum buyout option in some cash-balance plans for flexible distribution.	Taking a lump sum transfers longevity risk to you, and you must manage the money yourself.

What Is 401k?

A 401k is a tax-advantaged retirement savings plan sponsored by an employer. It allows workers to contribute a portion of each paycheck directly into investment accounts. The plan exists to help employees build retirement savings through pre-tax contributions and potential employer matching.

Definition of 401k

A 401k is a defined-contribution retirement plan established under Internal Revenue Code Section 401(k). Employees elect to defer a percentage of pre-tax salary into designated investment options. The employee bears the investment risk, and the employer administers the plan.

Key Characteristics of 401k

Characteristic	What It Means in Practice
Pre-tax contributions	Money goes in before income tax, lowering your taxable income for that year.
Employer match	Many companies match a percentage of your contributions, which is free money.
Contribution limits	The IRS sets an annual cap on how much you can contribute each year.
Tax-deferred growth	Investment earnings grow tax-free until you withdraw them in retirement.
Vesting schedule	Employer match funds may require years of service before you own them.
Investment choices	You choose from a menu of mutual funds and target-date funds.
Roth option	A Roth 401k accepts after-tax dollars for tax-free withdrawals later.
Early withdrawal penalty	Taking money before age 59.5 triggers a 10% IRS penalty plus tax.
Required distributions	You must start withdrawing at age 73 under current IRS rules.
Loan provisions	Many plans allow borrowing up to 50% of your vested balance.

Common Examples of 401k

Fidelity – A major provider administering 401k plans for thousands of US companies.
Vanguard – Offers low-cost index fund options within employer-sponsored 401k plans.
Target-date fund – A single fund that automatically shifts to conservative assets as you age.
Traditional 401k – The standard pre-tax version with tax-deferred growth and tax-deductible contributions.
Roth 401k – Contributions use after-tax income, allowing tax-free qualified withdrawals in retirement.
Safe Harbor plan – Employer contributions are fully vested immediately, avoiding nondiscrimination testing.
Profit-sharing plan – Employer adds discretionary profit-based contributions on top of employee deferrals.
Solo 401k – Designed for self-employed individuals with no employees, offering higher limits.
SIMPLE 401k – A simplified plan for small businesses with lower administrative costs.
Automatic enrollment – A plan feature that auto-deducts a default percentage unless the employee opts out.

Advantages and Limitations of 401k

Advantages	Limitations
Employer matching provides free money that instantly boosts your retirement savings balance.	Limited investment menu restricts you to a narrow set of pre-approved mutual funds.
Pre-tax contributions reduce your current-year taxable income for significant tax savings.	Early withdrawals before age 59.5 trigger a 10% penalty and ordinary income tax.
Automatic payroll deductions make consistent saving effortless and habitual.	Annual contribution limits are low relative to other retirement vehicles like IRAs.
Investment growth is tax-deferred, compounding without annual capital gains taxes.	Employer match funds may take years to vest, so you lose them if you leave early.
Roth option allows tax-free withdrawals for those expecting higher future tax brackets.	Required minimum distributions force taxable withdrawals at age 73 regardless of need.
High contribution limits allow substantial annual savings compared to other plans.	High administrative fees and expense ratios can quietly erode long-term investment returns.
Creditor protection shields your 401k balance from most bankruptcy and lawsuits.	You cannot easily access funds for emergencies without penalty or tax consequences.
Loan provisions offer a potential emergency cash source without tax penalties.	If you leave your job, an outstanding loan balance becomes due within 60 days.
Automatic enrollment features increase participation among hesitant employees.	Default contribution rates are often too low to adequately fund a full retirement.
Rollover flexibility lets you move funds to an IRA when changing employers.	You carry the full investment risk, since a 401k has no guaranteed payout.

Similarities Between Pension and 401k

Shared Aspect	How Pension and 401k Are Alike
Retirement Purpose	Both a pension and a 401k exist to provide workers with income during retirement.
Employment Basis	A pension and a 401k are both employer-sponsored plans offered through a workplace.
Tax Deferral	Both a pension and a 401k allow contributions to grow without immediate taxation.
Long-Term Saving	A pension and a 401k both encourage consistent saving over a career.
Employer Involvement	A pension and a 401k both require employer administration and administrative oversight.
Investment Growth	Both a pension and a 401k invest funds to generate returns over time.
Retirement Income	A pension and a 401k both aim to replace a portion of pre-retirement earnings.
Legal Framework	Both a pension and a 401k operate under the Employee Retirement Income Security Act.
Retirement Age	A pension and a 401k both define specific ages for benefit distribution.
Plan Documents	A pension and a 401k both follow a formal written plan document.
Vesting Rules	Both a pension and a 401k apply vesting schedules to ownership requirements.
Contribution Limits	A pension and a 401k both face annual contribution limits from regulators.
Rollover Options	Both a pension and a 401k permit funds to roll into another retirement account.
Beneficiary Designation	A pension and a 401k both allow workers to name a beneficiary for benefits.
Survivor Benefits	Both a pension and a 401k can provide payments to a surviving spouse.
Early Withdrawal Penalty	A pension and a 401k both impose penalties for withdrawals before age fifty-nine.
Required Distributions	Both a pension and a 401k mandate minimum required distributions at seventy-two.
Fee Structures	A pension and a 401k both charge administrative and investment management fees.
Fiduciary Duty	Both a pension and a 401k require plan fiduciaries to act in participant interest.
Plan Sponsors	A pension and a 401k both rely on the sponsoring employer for funding.
Eligibility Criteria	Both a pension and a 401k require employees to meet age and service requirements.
Form 5500 Filing	A pension and a 401k both require annual reporting to the Department of Labor.
Disclosure Statements	Both a pension and a 401k provide participants with fee and fee disclosures.
Market Exposure	A pension and a 401k both expose savings to fluctuations in financial markets.
Inflation Risk	Both a pension and a 401k face the risk that inflation erodes purchasing power.
Longevity Concern	A pension and a 401k both carry the risk of outliving accumulated savings.
Plan Termination	Both a pension and a 401k may be terminated by an employer under rules.
Recordkeeping Systems	A pension and a 401k both require accurate records of contributions and balances.
Participant Statements	Both a pension and a 401k provide regular statements showing accrued benefits.
Retirement Security	A pension and a 401k both serve as a primary source of retirement security.

Pension or 401k: Which Should You Choose?

Your choice hinges on job stability versus personal control. A pension rewards long tenure with a guaranteed lifetime income, while a 401k rewards flexibility with portable savings. For most people, the deciding variable is whether you value a predictable monthly check over a self-managed investment you control.

When to Use Pension

Choose Pension when you expect 20-plus years with one employer and want a guaranteed, predictable retirement paycheck. It suits risk-averse workers who dislike managing investments. This option wins for public employees, union members, or anyone valuing lifetime income security over portability.

When to Use 401k

Choose 401k when you anticipate changing jobs every few years or want direct control over investments. It fits self-directed savers seeking employer matching and tax-deferred growth. This option wins for entrepreneurs, frequent job-changers, or anyone needing full account portability without vesting penalties.

Common Misconceptions About Pension and 401k

Common Myth	The Reality
A pension guarantees you a fixed monthly income for life.	Traditional pensions are often underfunded or frozen, and a 401k gives you full ownership of your own savings.
A 401k is the same thing as a pension plan.	A pension is employer-funded and managed by the employer, while a 401k is employee-funded through payroll deductions.
You can lose your entire pension if your company goes bankrupt.	The PBGC insures most traditional pensions, but a 401k balance is your own protected asset.
Pensions are only for government employees like teachers or police.	Private companies still offer pensions, but a 401k is now the dominant private-sector retirement plan.
With a 401k, your employer contributes a fixed amount every year.	Employer 401k contributions are often just a matching percentage, not a guaranteed annual amount.
You cannot touch any 401k money until you turn 65.	A 401k allows withdrawals at 59½ without penalty, but a pension usually pays out at a set retirement age.
Pension payments never change once you retire and start collecting.	Some pensions lack inflation adjustments, while a 401k balance can keep growing through investments.
All pensions pay out to your spouse after you pass away.	Survivor benefits are a pension option, but a 401k passes directly to your named beneficiary.
A 401k is only offered by large Fortune 500 companies.	Millions of small businesses now offer a 401k, while pensions are rarer in smaller firms.
Pensions are completely safe because the government regulates them fully.	The PBGC covers pensions, but 401k plans are regulated by the IRS and ERISA instead.
Your 401k money is invested in safe bonds and cash only.	A 401k offers mutual funds, stocks, and target-date funds, not just conservative bond holdings.
You cannot change jobs without losing your pension benefits.	Leaving an employer freezes your pension, but a 401k rolls over into your new employer's plan.
Pensions are always better than a 401k for every single worker.	A 401k offers portability, while a pension rewards long tenure with one specific employer.
You can borrow from a pension like you borrow from a 401k.	Pensions rarely allow loans, but a 401k permits borrowing up to 50% of your vested balance.
Your 401k balance is taxed when you retire from your job.	401k contributions are pre-tax, but withdrawals are taxed as ordinary income during retirement.
Pension plans are fully funded by your personal contributions.	Pensions are funded by the employer, while a 401k relies mostly on your own elective deferrals.
A 401k gives you a guaranteed payout for your entire lifetime.	A 401k is a savings account, but a pension provides a lifetime income stream instead.
Pensions are not taxable when you finally retire.	Pension payments are fully taxable, just like 401k withdrawals, at your ordinary income rate.
You can have a pension and a 401k at the same time.	Many employers offer both a pension and a 401k, giving you two separate retirement income streams.
Your 401k is managed by your employer, not by you.	You choose 401k investments, but a pension plan is managed entirely by the company's investment team.
Pensions are only for union workers in manufacturing jobs.	Pensions exist in tech, utilities, and finance, while a 401k is the universal standard today.
You cannot lose money in a pension because it is safe.	Pension funds can be underfunded, while a 401k can lose value in a poor stock market.
Your 401k is not protected from your creditors in bankruptcy.	ERISA protects 401k assets from creditors, but a pension is also protected under federal law.
Pensions are completely gone from the modern American workforce.	Pensions still exist in public sector, but a 401k is now the primary retirement vehicle.
A 401k requires you to work for 30 years to get vested.	401k vesting is usually 3 to 6 years, but a pension often requires a decade of service.
Pensions pay out a lump sum only if you choose that option.	Pensions often offer a lump sum, but a 401k always pays out as a lump sum withdrawal.
You cannot contribute more to a pension than a 401k.	401k contribution limits are high, while a pension has no employee contribution at all.
Your 401k is not portable if you switch to a new employer.	401k rolls over to a new plan, while a pension stays with the original company.
Pensions are all defined contribution plans like a 401k.	Pensions are defined benefit, while a 401k is a defined contribution plan by law.
You cannot start a pension at age 25 like a 401k.	Pensions require long tenure, but a 401k allows you to start saving at your first job.

Conclusion

Difference Between Pension and 401k comes down to who bears the investment risk. A pension guarantees lifetime income, favoring loyal long-term employees. A 401k puts control and market risk on you, rewarding disciplined savers. Choose a pension for predictable retirement security; choose a 401k for portability, control, and investment flexibility.

FAQs on Difference Between Pension and 401k

What is the basic difference between a pension and a 401k?: A pension is a defined-benefit plan where your employer guarantees a fixed monthly income for life, while a 401k is a defined-contribution plan where you and your employer contribute to an individual investment account that you manage.
Which is better for retirement income, a pension or a 401k?: A pension is generally better for predictable, guaranteed lifetime income because the employer bears the investment risk, whereas a 401k offers more flexibility and control but places the entire investment and longevity risk on you.
Is a pension safer than a 401k?: Yes, a pension is typically safer because it is insured by the Pension Benefit Guaranty Corporation and backed by your employer, whereas a 401k is subject to market volatility and can lose value based on your investment choices.
Can you have both a pension and a 401k at the same time?: Yes, you can have both a pension and a 401k simultaneously if your employer offers both plans, allowing you to build a guaranteed income stream from the pension while saving additional tax-advantaged money in your 401k.
Can I switch my pension to a 401k?: Yes, you can switch your pension to a 401k through a lump-sum distribution or a rollover, but this is a permanent decision that transfers the investment risk and longevity risk entirely onto you.
What happens to my pension if I leave my job before retirement?: Your pension benefits are typically frozen at your current accrued amount and may pay a smaller amount at retirement, whereas your 401k balance remains fully yours and can be rolled over into an IRA or a new employer's plan.
Who bears the investment risk in a pension versus a 401k?: Your employer bears the investment risk in a pension because they must fund your promised benefit, while you bear all the investment risk in a 401k since your account balance depends entirely on market performance.
Is a 401k more portable than a pension?: Yes, a 401k is much more portable than a pension because you can easily roll it into an IRA or new employer plan when you change jobs, whereas a pension is tied to your specific employer and its rules.
What is the most common mistake people make when comparing a pension and a 401k?: The most common mistake is focusing only on the account balance of a 401k and ignoring the pension's guaranteed lifetime income value, which can lead you to underestimate your total retirement security.
How do employer contributions differ between a pension and a 401k?: Employers fund a pension entirely with employer money based on your salary and years of service, while a 401k relies primarily on your own contributions, often with an optional employer match up to a certain percentage.