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Chapter 2. The Rules: Understanding Your... > Common Features of 401(k) Plans - Pg. 18

The Rules: Understanding Your 401(k) 401(k) plans are "play-and-pay" retirement plans. If you play, your company pays you. If you don't play, you get nothing. The company match is free money. If you're not participating, you're giving up free money. If you like giving up free money, you need the kind of help where you lie down on the couch and someone asks you about your childhood. You get the picture. 18 Your company may not offer a match but may instead deposit a fixed percentage of your pay into an account with your name on it. This deposit is most commonly referred to as a profit-sharing contribution. Like 401(k) plans, profit-sharing plans are protective shells. The big difference is the play-and-pay feature. Profit-sharing plans generally do not require you to participate to get the free money; 401(k) plans do. Your employer's contributions almost always go into your account before taxes. A question you should ask is, "Does the company have to match my contributions?" Said another way, does the company have "discretion" regarding putting money into your account? To answer this question, go to the SPD and look for the words discretionary or nondiscretionary. (You may have to consult your plan document or even the manager for an answer to this question.) You want to see the word nondiscretionary because that means that the plan sponsor must make a contri- bution. Warning!