The Ultimate Retirement Plan Guide for Employers: Making Smart Choices

401 (k) planProviding competitive benefits, such as retirement plans, is one of the most effective strategies for attracting and retaining skilled employees. Moreover, offering retirement plans is increasingly becoming a requirement in many states. Fortunately, offering a retirement plan comes with several benefits for employers, and there is a range of options available to suit different savings objectives, company sizes, and budgetary constraints. In this article, we are going to learn about the different types of retirement plans that you can offer your employees so, without waiting further, let’s dive in.

Employer-Sponsored Retirement Plan

1. 401(k) plans

The 401(k) plan is currently the most popular retirement savings program offered by employers, particularly those in the for-profit sector. As a defined contribution plan, the primary source of funding comes from the employee’s contributions, though an employer match is often available as well. Within the plan, employees can select and manage their own investments, and upon retirement, they will have full control over their accumulated funds.

2. 403(b) Plan

403(b) plans are similar to 401(k) plans in many ways, including the fact that they allow employees to defer a portion of their salary into individual accounts. However, 403(b) plans are exclusive to certain employees of public schools and tax-exempt organizations, whereas 401(k) plans are more widely available.

3. 457 Plan

Although 457 plans have similarities with 401(k) plans, they are primarily provided by government employers and non-profit organizations. Unlike 401(k) plans, which are qualified retirement plans that must adhere to the reporting guidelines and restrictions of ERISA, 457 plans are typically classified as non-qualified plans and may not be subject to the same regulations.


Small businesses with less than 100 employees have the option of offering a Savings Incentive Match Plan for Employees (SIMPLE) IRA as a retirement plan. Both employees and employers can make contributions to the plan, which is similar to a 401(k) plan. Employee contributions are pre-tax, while employers may be eligible for tax benefits.

One key difference between a SIMPLE IRA and a 401(k) plan is that employers are required to make either a matching contribution of up to 3% or a non-elective contribution of 2% for each eligible employee. However, unlike with a traditional 401(k) plan, employers are not required to meet filing requirements. Another distinction is that, if they are qualified, eligible employees must accept the non-elective employer payments to a SIMPLE IRA and cannot opt out.

5. SEP IRA Plan

The Simplified Employee Pension (SEP) plan is a retirement savings plan that is comparable to the SIMPLE IRA plan, but it is primarily designed for self-employed individuals or small business owners. One major difference between these two plans is that, unlike the SIMPLE IRA, a SEP plan does not allow employees to make elective contributions; only employer contributions are permitted. Moreover, using a SEP plan offers greater flexibility to the employer in terms of how much and when to make contributions.

Retirement Plan Options not Sponsored by Employers

1. Traditional Individual Retirement Accounts (IRAs)

Individual investors can save for retirement on a pre-tax basis, within the contribution limits established by the IRS, through Traditional Individual Retirement Accounts (IRAs). Like 401(k) plans, these IRAs have reporting requirements that promote transparency and ensure sound fiscal management. However, financial institutions offering and managing the IRA plans bear the burden of these reporting requirements, not the account holders.

Withdrawals from Traditional IRAs made before the account owner turns 59 ½ years old are subject to penalties, and all funds in the account are taxed upon withdrawal. This tax structure enables investors to save money for retirement, with the expectation that their income and tax bracket will be lower in retirement than during their working years.

2. Roth IRAs

Roth IRAs operate much like traditional IRAs, with one key difference being that contributions to the former are made using after-tax dollars. This unique feature allows for tax-free withdrawals during retirement. However, annual contribution limits still apply, and Roth IRAs must be established through a financial advisor or traditional brokerage.

3. Guaranteed Income Annuities

Guaranteed income annuities, which are also known as income annuities, are a type of retirement savings instrument that converts savings into a dependable monthly income stream. These annuities are available in two variations: single premium immediate annuities (SPIAs) and deferred income annuities (DIAs). In either case, the annuity employs retirement funds that have already been saved to acquire a guaranteed, regular income stream. This income stream is not affected by market performance, providing a reliable source of income for retirees.

4. Payroll Deduction IRAs

Some traditional and Roth IRAs allow contributions to be made on a pre-tax or post-tax basis via payroll deduction, which is preferred by investors who prefer the simplicity and control of payroll deductions to finance their savings plans. These accounts offer the same advantages and restrictions as their non-payroll-deduction equivalents, but with the added convenience of automated contributions being deducted straight from the investor’s paycheck.

5. Cash-Value Life Insurance Plan

Cash-value life insurance plans aren’t usually designed as a dedicated retirement plan, but they can be utilized for such purposes. By purchasing a life insurance policy, which includes a cash-value portion accruing tax-deferred interest, investors can potentially benefit from an attractive retirement savings option. This is so that the cash value may generally be retrieved while the investor is still living for specific life events, such as retirement. As the money grows on a tax-deferred basis, it can be a valuable addition to one’s retirement income.

Final Thoughts 

Retirement plans are a great way to provide financial security to your employees and are relatively easy to set up. You should consider the various types of plans available and make sure that you select the one that provides the most benefits to your employees. Your employees can also look into setting up their own individual retirement accounts if they want more control of their money. With proper planning, you can ensure that both you and your employees can have a secure retirement in the future.

Author Bio

Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He has over three decades of experience working with investments and retirement planning. Over the last 10 years, he has turned his focus to self-directed accounts and alternative investments.