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Retirement accounts and pension funds: 401(k)s, IRAs, pensions
ERISA & IRAs 1974; 401(k) 1978· Asset or instrument
Fact, law or dataA rule, statute, definition or measured number.
Tax-favored retirement plans, including 401(k)s, IRAs and traditional pensions, hold a large share of Americans' financial wealth.
See it on the Money & Finance map →How it works
ERISA (1974) set rules for private pensions and created IRAs. The 401(k), named for a 1978 tax-code section, took off after consultant Ted Benna applied it to payroll savings in 1980. Traditional 401(k)s and IRAs defer tax until withdrawal; Roth IRAs (from 1998) and Roth 401(k)s (from 2006) tax money going in but not coming out. Pensions promise a set income; 401(k)s shift investment risk to workers. The 2026 employee 401(k) limit is $24,500. US retirement assets totaled about $45 trillion in 2025.
Why it matters
These accounts are how most Americans own stocks, and their steady payroll contributions are a large, constant source of buying for index funds.
Think of it like
Tax deferral works like a 1031 exchange: gains compound untaxed until you finally cash out.
Facts, rules and data
ERISA and Internal Revenue Code sections 401(k) and 408; the Investment Company Institute's quarterly retirement data; IRS annual contribution limits.
Debates and risks
Whether workers save enough, and whether shifting risk from employers to individuals has worked, are debated; Social Security's projected 2033–34 trust fund shortfall adds uncertainty.
Connections (4)
▸Retirement accounts and pension funds: 401(k)s, IRAs, pensions channel trillions of dollars into Index funds and passive investingFact, law or data
The connection
Every paycheck, 401(k) contributions buy funds automatically, and the default choice is usually a target-date fund built largely from index funds. The 2006 Pension Protection Act encouraged automatic enrollment and such defaults. The federal employees' Thrift Savings Plan is built mainly from index funds.
When and why
Since the Pension Protection Act of 2006; the federal Thrift Savings Plan has offered index funds since 1988.
How we know
Vanguard's annual How America Saves report shows most participants in target-date funds; ICI tracks 401(k) assets by fund type.
Debates and risks
Whether steady, price-insensitive buying from paychecks props up stock prices, the passive-flows debate, is argued among economists.
▸PBGC: the federal pension insurance agency insures traditional pensions among Retirement accounts and pension funds: 401(k)s, IRAs, pensionsFact, law or data
The connection
PBGC insures traditional defined-benefit pensions at private employers. If a company's plan fails, PBGC takes it over and pays benefits up to a yearly legal limit, funded by premiums from plan sponsors, not taxes. It does not cover 401(k)s or IRAs, where the investment risk sits with the worker.
When and why
Created by ERISA in 1974, after Studebaker's 1963 plant closure left many workers with little of their promised pensions.
How we know
ERISA's text and PBGC annual reports, which list plans taken over and roughly 31 million workers and retirees covered.
Debates and risks
Whether premiums will cover future failures, and whether the 2021 rescue of failing union multiemployer plans set a precedent for more bailouts.
▸Retirement accounts and pension funds: 401(k)s, IRAs, pensions include pensions that are top investors in Private equity and leveraged buyoutsFact, law or data
The connection
Public pensions promise fixed benefits and assume returns around 7% a year, so many put 10% or more of assets into private equity hoping to beat stocks, making pensions the largest source of PE money. 401(k)s have had little direct access, but a 2020 Labor Department letter and a 2025 executive order opened the door to PE in diversified funds.
When and why
Oregon's state pension backed KKR in 1981, an early leap; today CalPERS, CalSTRS and other big plans are among the largest PE investors.
How we know
Pension annual reports list PE commitments and returns; the Labor Department's June 2020 information letter and the 2025 executive order are public.
Debates and risks
Whether PE beats public stocks after fees for pensions, and whether 401(k) savers will gain or mainly pay higher fees.
▸The 2022 UK gilt crisis: the mini-budget and pension LDI funds hit UK defined-benefit pensions, a kind of Retirement accounts and pension funds: 401(k)s, IRAs, pensionsFact, law or data
The connection
UK defined-benefit pensions promise retirees a set income for life, so they used LDI to hedge against falling interest rates. Ironically, rising yields shrank their liabilities and improved funding on paper, but the collateral calls forced many schemes to sell corporate bonds, property funds and other assets quickly to keep their hedges.
When and why
Hundreds of UK corporate defined-benefit schemes, many of them small users of pooled LDI funds, in late September and October 2022.
How we know
Pensions Regulator guidance, Parliament's Work and Pensions Committee inquiry (2023), and Bank of England accounts of schemes' rushed asset sales.
Debates and risks
Whether LDI helped or hurt schemes overall is debated; US 401(k) savers were not directly affected, and US pensions generally used less leverage.