So they used to have pensions for most private workers, then they went to 401Ks which are self managed market based retirement funds.

1. The company has a management agreement with a brokerage (i.e. Fidelity) to manage the accounts and they pick which funds you can invest in.
2. You allocate how much you contribute, up to the IRS max.
3. Many companies give matching funds which means you get a 100% return on that amount right out of the gate.
4. In good years you can do very well, far beyond what pensions would’ve given.
5. The money is pre tax so you lower your income for tax purposes during your peak earning years.
6. You can still save and invest anyway you want in addition to this (i.e. IRA). You can still collect social security.

Downside…

1. You are limited in investments
2. You are not guaranteed returns since you are at the mercy of the bond and equities (stock) market. You can lose money in bad years.
3. You must pay income tax on it when you start taking distributions from it in retirement. The minimum mandatory distribution amount could push you into a higher tax bracket.

The big push away from pensions to 401Ks and IRAs means the market has become the main retirement savings for most Americans. Wall St and financial institutions love them because it pumped trillions of $ into the market and profits in fees into the financial firms. Companies no longer had to manage pensions and guarantee returns. Most gov jobs still have pensions.