The era of pensions in the U.S. has mostly been replaced by 401(k) plans, but a new study by the National Institute on Retirement Security suggests that traditional pensions may actually be less costly for companies. The study found that a defined benefit plan requires 16.5% of payroll to replace 54% of income, while a defined contribution plan like a 401(k) requires 32.3%.

Pension plans involve contributions from both the company and employees, with funds invested to grow over time. In retirement, predetermined amounts are paid out based on factors like tenure and salary. On the other hand, 401(k) plans are individualistic, with each person contributing to their own account and choosing investments. Employers may offer an employer match as part of the compensation package.

The NIRS study found that the group nature of pension plans can result in lower costs for employers due to economies of scale and risk pooling. While 401(k) plans offer individual control, they may require higher contribution rates to achieve the same retirement income replacement level. Policymakers are encouraged to protect existing pensions while fostering innovation in DC plans.

Whether you have a pension or 401(k), a financial advisor can help you plan for retirement. SmartAsset offers a free tool to match you with up to three financial advisors in your area. It’s important to know how much you’ll need in retirement, and an emergency fund can help cover unexpected expenses. Consider consulting a financial advisor to navigate legislative changes and ensure financial security in retirement.

Read more at Yahoo Finance: Why Pensions May Be Less Expensive for Employers Than 401(k) Plans