12 All Retirement Accounts Your Business Can Offer

A robust retirement strategy does more than balance sheets—it signals to employees that their long-term growth matters. Over 80% of workers say retirement benefits strongly influence their job satisfaction, and companies can leverage significant tax deductions by sponsoring qualified plans. Yet beneath the promise of retirement security lies a thicket of ERISA rules, reporting deadlines, and fiduciary duties that can overwhelm plan sponsors.

To bring clarity to these complexities, this guide lays out the complete range of retirement accounts your business can offer. Each option—whether a staple like the 401(k) or specialized choices such as cash balance and multi-employer plans—carries its own mix of contribution rules, tax treatment, and administrative demands.

Here are 12 retirement accounts your business can offer, from the most common 401(k) to specialized defined benefit and multi-employer plans.

1. 401(k) Plans

A 401(k) plan is an employer-sponsored, defined contribution retirement vehicle that lets employees defer a portion of their salary into a tax-advantaged account. It’s the most common retirement plan for private-sector employers, balancing flexibility with robust tax benefits. Employers can tailor matching formulas, vesting schedules, and investment lineups to fit their workforce, while participants choose how much to contribute—up to IRS limits—and where to invest.

Summit Consulting Group, LLC can help you design, launch, and maintain a compliant 401(k) plan that meets your objectives. Learn more about our offerings on our 401(k) Plans page.

1.1 How Summit Consulting Group, LLC Facilitates 401(k) Plan Administration

As your third-party administrator (TPA) and ERISA 3(16) Administrator, Summit handles every administrative detail:

• Paperwork & Government Filings: We prepare adoption agreements, execute required notices and annual Form 5500 filings.
• Participant Communications: Enrollment kits, periodic fee disclosures, and customizable plan statements.
• 3(38) Investment Manager Service: We select, monitor and rebalance investment lineups to align with your plan’s objectives.
• Cost-Reduction & Risk Management: Our strategies have reduced plan expenses by 32–65% for clients, while shifting fiduciary exposure away from sponsors.
• Integration with Existing Providers: Whether you already have a recordkeeper or custodian, Summit’s platform plugs right in, automating data gathering and reducing your manual workload—often by dozens of hours each month.

1.2 Traditional vs. Roth 401(k): Tax Treatment and Employee Choice

Employees can choose between two tax treatments:

• Traditional 401(k)

  • Pros: Contributions are made with pre-tax dollars, lowering current taxable income.
  • Cons: Withdrawals in retirement are taxed as ordinary income.

• Roth 401(k)

  • Pros: Contributions use after-tax dollars, and qualified withdrawals are tax-free.
  • Cons: No upfront tax deduction; less benefit if current tax rate is lower than expected retirement rate.

The IRS limits elective deferrals each year. For 2024, the limit is $23,000, rising to $23,500 in 2025. Participants aged 50 and over can make an additional catch-up contribution of up to $7,500, with a further catch-up amount available to those aged 60–63 (bringing their total catch-up to roughly $10,000).

1.3 Employer Matching Strategies to Boost Participation

An employer match is one of the most potent levers for driving employee engagement:

• Common Formulas: Examples include a 50% match on the first 6% of deferred salary or dollar-for-dollar up to 4%.
• Vesting Schedules: Graduated (e.g., 20% per year over five years) or cliff (100% after two years) schedules can improve retention.
• Best Practices:
  • Automatic Enrollment & Escalation: Enroll new hires at a 3% deferral rate and automatically increase by 1% each year.
  • Clear Communication: Publish an annual “match calendar” so employees know exactly how to capture maximum employer contributions.

1.4 Setting Contribution Limits and Catch-Up Contributions

Beyond elective deferrals, plan sponsors must manage overall contribution caps and compliance testing:

• IRS Limits: Combined employer and employee contributions are capped at $69,000 for 2024 and $76,500 for 2025 (including catch-ups).
• Highly Compensated Employee (HCE) Testing: Ensures plan benefits don’t disproportionately favor HCEs.
• Action Item: Partner with your TPA to run annual non-discrimination testing—this protects plan status and avoids corrective distributions.

1.5 Compliance and Reporting Requirements

Maintaining ERISA compliance requires timely filings and disclosures:

• Form 5500: Filed within seven months of plan year-end (typically July 31). Late filings can incur penalties up to $2,233 per day.
• Summary Plan Description (SPD): Must be distributed within 90 days of plan adoption, and reissued every five years.
• Summary Annual Report (SAR): Delivered within nine months after plan year-end, summarizing Form 5500 results.
• Additional Notices: Fee disclosures, blackout notices and Qualified Default Investment Alternative (QDIA) notices as needed.

Staying on top of these requirements protects your business from penalties and preserves the tax-qualified status of your plan.

2. Cash Balance Plans

Cash balance plans are a hybrid between a traditional defined benefit pension and a defined contribution 401(k) plan. Each participant has a “hypothetical” account that grows with a predefined pay credit and an interest credit. This structure delivers the predictability of a pension’s guaranteed benefit while allowing employers to show individual balances—making it easier for employees to understand their retirement savings.

For business owners seeking larger current‐year deductions than a 401(k) alone can provide, cash balance plans can supercharge tax savings. They work particularly well for companies with stable cash flow and a smaller workforce, enabling highly compensated owners to contribute significantly more than standard contribution caps allow.

2.1 Understanding the Defined Benefit Structure

At its core, a cash balance plan promises a future benefit calculated on an individual account basis:

• Pay Credit: A percentage of each year’s compensation (e.g., 5%) or a flat dollar amount is “credited” annually to the participant’s hypothetical account.
• Interest Credit: An agreed‐upon rate—often tied to the 30-year Treasury yield or a fixed rate—is applied each year to the account balance.

Unlike a traditional pension, where participants receive a monthly lifetime annuity at retirement, cash balance plans display a lump‐sum equivalent. And whereas 401(k) participants bear investment risk, the employer guarantees both the pay and interest credits.

2.2 Contribution Formulas and Employer Tax Deductions

Contributions to a cash balance plan are determined actuarially, based on:

• The plan’s pay credit rate and interest credit assumption.
• Participant demographics (age, compensation, service).

Because the employer bears the investment and longevity risk, IRS rules require annual actuarial valuations to confirm sufficient funding. Contributions made by the business are tax‐deductible in the year they’re deposited, up to limits set by the plan’s design and ERISA guidelines. This front‐loaded deduction can be especially attractive for owner‐only or owner-heavy companies.

2.3 Portability and Rollover Options

When an employee leaves, the cash balance plan can distribute benefits as:

• A lump‐sum payment, rolled over into an IRA or another qualified plan.
• An annuity, paid directly by the plan.

Actionable example: Offer exit interviews or “rollover meetings” with departing participants. Walking them through trustee-to-trustee transfers helps preserve their tax benefits and maintains goodwill.

2.4 Suitability for Different Business Owners

Who should consider a cash balance plan?

Pros:

• High contribution limits for business owners and key executives.
• Predictable funding and dedicated tax deductions.
• Clear account balances appeal to participants.

Cons:

• Higher setup and ongoing actuarial costs.
• Employer assumes all investment and longevity risk.
• Complexity increases with headcount and participant turnover.

Ideal scenarios include professional practices, family-owned firms, and closely held companies with consistent annual profits and under 50 total participants.

2.5 Setup Process and Ongoing Administration

Implementing a cash balance plan involves several key steps:

1. Plan Design & Actuarial Consultation – Define pay credits, interest credits, and participant eligibility.
2. Adoption Agreement & Document Preparation – Execute ERISA-compliant plan documents.
3. Initial Actuarial Valuation – Establish opening balances and funding targets.
4. Plan Launch – Distribute required notices and enrollment materials.

Ongoing tasks include:

• Annual actuarial valuations and required contributions.
• Participant statement generation showing hypothetical account growth.
• Non-discrimination testing and regulatory filings (Form 5500).

Working with an experienced TPA ensures these duties are handled accurately and on time, freeing you to focus on running your business.

3. 401(h) Plans

A 401(h) plan is a specialized sub-account within a qualified defined benefit pension plan that allocates assets exclusively for post-retirement medical benefits. By maintaining a dedicated trust for healthcare expenses, employers can address retiree health liabilities in a structured, tax-efficient way without creating a standalone plan.

3.1 Overview and Purpose of 401(h) Plans

A 401(h) account sits alongside the core pension benefit but only pays for qualifying medical costs. Typical eligible expenses include:

• Health insurance premiums for retirees
• Medical, dental, and vision co-payments
• Long-term care services

Employers define eligibility—often based on years of service or age thresholds—so the benefit aligns with broader workforce and budget objectives.

3.2 Tax Advantages for Employers and Retirees

401(h) plans deliver dual tax benefits:

• Employer Contributions: Fully tax-deductible as pension plan funding, lowering corporate taxable income.
• Retiree Distributions: Withdrawals used for qualified medical expenses are generally exempt from income tax.
• Tax-Deferred Growth: Earnings on 401(h) assets compound tax-deferred until distributed for healthcare purposes.

These incentives make 401(h) arrangements a compelling complement to standard retiree health funding.

3.3 Integration with Defined Benefit Plans

A 401(h) sub-account can’t stand alone—it must be embedded in a traditional defined benefit plan:

• Plan Amendment: Update the master plan document to authorize a 401(h) trust.
• Funding & Nondiscrimination Tests: Comply with ERISA rules to ensure contributions don’t unduly favor highly compensated participants.
• Asset Segregation: Keep 401(h) investments and accounting separate from the main pension fund.

This close integration preserves the pension’s qualified status while carving out funds for healthcare.

3.4 Implementation Steps and Documentation Requirements

Launching a 401(h) plan involves several key actions:

1. Plan Amendment & Adoption
   • Draft and execute an amendment specifying 401(h) eligibility, benefit rules, and funding formulas.
2. Actuarial Funding & Budgeting
   • Work with an actuary to project retiree medical liabilities and establish annual contribution targets.
3. Participant Notices & SPD Updates
   • Distribute revised Summary Plan Descriptions and any required election forms to participants.
4. Ongoing Maintenance
   • Segregate 401(h) assets, perform annual nondiscrimination testing, and include 401(h) information in the Form 5500 filing or attachment.

A knowledgeable TPA can coordinate these steps, ensuring the 401(h) plan operates smoothly and remains compliant.

4. Profit Sharing Plans

A profit sharing plan is a discretionary defined contribution program in which an employer allocates a portion of annual profits to employee retirement accounts. Unlike fixed-contribution plans, the company decides each year whether to contribute and at what percentage, giving sponsors flexibility to align retirement funding with business performance. Employees benefit from direct ties between company success and their retirement savings, while employers enjoy tax-deductible contributions and the ability to reward staff without committing to a fixed budget.

4.1 How Profit Sharing Works

In a profit sharing arrangement, the employer determines a “pool” based on profits or a flat percentage of payroll. That pool is then distributed to participants according to an allocation formula, such as:

• Pro Rata: Each employee receives the same percentage of their compensation.
• Integrated (or “permitted disparity”): Allocations are weighted more heavily above the Social Security wage base.
• New Comparability (or “cross-tested”): Different employee groups receive different allocation rates to favor key classes (e.g., executives).

Example of a simple pro rata allocation:

Employee	Annual Salary	Allocation Rate	Contribution
Alice	$50,000	5%	$2,500
Bob	$100,000	5%	$5,000
Carol	$75,000	5%	$3,750

By choosing the method that best fits your workforce, you can balance fairness, reward tenure or seniority, and control plan costs.

4.2 Contribution Flexibility and Tax Benefits

Employers aren’t locked into a fixed funding formula—each year you can decide whether to contribute and at what level. Contributions up to 25% of eligible payroll are tax-deductible, reducing your corporate taxable income. Additionally, profit sharing contributions count toward the overall defined contribution limit (for example, $69,000 in 2024, excluding catch-up contributions), so they can be combined with other plans like a 401(k).

4.3 Motivating Employees through Profit Sharing

Tying retirement benefits to company performance creates a shared interest in success. When employees see contributions fluctuate with profitability, they often feel more invested in outcomes. Best practices include:

• Transparent Communication: Publish the profit-sharing formula and contribution schedule each year.
• Regular Updates: Share quarterly or annual financial summaries so participants understand the link between profits and their retirement credits.
• Clear Metrics: Define performance indicators (revenue targets, net income thresholds) that trigger contributions, making expectations concrete.

4.4 Key Considerations and Allocation Methods

Before adopting a profit sharing plan, consider:

• Non-Discrimination Testing: If the plan is combined with a 401(k), ensure allocations don’t favor highly compensated employees; testing may be required.
• Allocation Complexity:
  • Pro Rata: Simple to administer, but high-earners receive larger dollar amounts.
  • Integrated: Rewards employees above the Social Security wage base; adds a layer of complexity.
  • New Comparability: Offers maximum design flexibility—ideal for owners or executives—but requires cross-testing and careful documentation.

Partnering with a knowledgeable TPA can help you select the optimal allocation method, perform required testing, and handle annual filings, so you can focus on steering the business and letting the plan drive employee engagement.

5. Defined Benefit Plans

Traditional defined benefit (DB) plans promise participants a predictable stream of retirement income, usually based on years of service and final average salary. Unlike defined contribution plans, where employees bear investment risk, DB plans place funding and longevity risk squarely on the employer. For organizations seeking to offer stability and a guaranteed benefit formula, a pension plan can be an attractive option—especially for industries with long-tenured workforces and predictable budgets.

5.1 Plan Structure and Promise of Future Benefits

At the heart of every defined benefit plan lies a clear benefit formula:

• Final Average Salary Method: Benefits equal a percentage of the average pay over the last few years (for example, 1.5% × years of service × average of highest five-year salary).
• Flat-Benefit Method: A fixed dollar amount per year of service (for example, $50 per month for each year worked).

Participants become eligible once they satisfy the plan’s vesting schedule—often 5 to 7 years of service—and reach the designated normal retirement age (commonly age 65). Some sponsors also offer early retirement subsidies or disability protections, enhancing the plan’s appeal.

5.2 Actuarial Calculations and Funding Requirements

Actuaries play a pivotal role in keeping a DB plan solvent:

1. Actuarial Valuation: Annual assessments estimate the present value of accrued benefits, taking into account participant ages, compensation and projected service.
2. Contribution Determination: Based on the valuation, actuaries recommend the required contribution—often using methods such as:
   • Unit Credit: Allocates the cost of benefits earned each year.
   • Level Percentage of Pay: Spreads costs evenly as a percentage of payroll.
3. Funding Targets: Employers must meet ERISA’s minimum funding requirements, adjusting for actual investment returns and demographic changes.

Timely funding ensures promised benefits remain secure and helps avoid underfunding penalties.

5.3 Employer Obligations and Risk Management

With defined benefit plans, employers carry two main risks:

• Investment Risk: The possibility that plan assets underperform actuarial assumptions.
• Longevity Risk: Unanticipated increases in participant life expectancy, which drive up future benefit obligations.

To manage these risks, sponsors may:

• Adopt a liability-driven investment strategy, matching bond portfolios to projected pension payouts.
• Purchase annuities to transfer payout and longevity risk to an insurance carrier.
• Use risk corridors or stop-loss provisions to limit exposure to market volatility.

Regular asset-to-liability measurements help keep the plan on track and the employer informed.

5.4 PBGC Insurance Coverage and Premium Obligations

Most single-employer DB plans are insured by the Pension Benefit Guaranty Corporation (PBGC). If a plan terminates with insufficient assets, PBGC steps in to cover guaranteed benefits, subject to statutory limits. Plan sponsors must pay:

• Flat-Rate Premium: A fixed dollar amount per participant per year.
• Variable-Rate Premium: A percentage of any underfunded vested benefits.

For more details on coverage rules and premium schedules, visit the PBGC’s insurance guidance page.

5.5 Termination Procedures and Participant Protections

When a sponsor decides to end its DB plan, ERISA outlines three termination types:

• Standard Termination: Plan is fully funded, and all benefits are distributed via lump sums or annuities.
• Distress Termination: Available when bankruptcy or severe financial hardship prevents further contributions; requires PBGC approval.
• Involuntary Termination: PBGC can terminate an underfunded plan to protect participants.

Regardless of method, sponsors must:

• Provide advance notices to participants and beneficiaries.
• Offer distribution options and rollover guidance.
• Ensure participants receive required benefit statements and election forms.

Navigating termination demands meticulous planning to protect retiree benefits and fulfill fiduciary responsibilities.

6. ESOPs (Employee Stock Ownership Plans)

An ESOP is a qualified retirement plan that invests primarily in the stock of the sponsoring company, effectively turning employees into owners. By holding company shares in a tax-advantaged trust, participants build retirement savings tied to corporate performance. For employers, ESOPs can serve both as an ownership incentive and a financing tool, allowing companies to borrow to buy out retiring founders or to recapitalize.

6.1 Building an Ownership Culture through ESOPs

When employees hold equity, their perspective shifts—from “just a paycheck” to “I own part of this.” Studies show that employee-owners often exhibit higher engagement, lower turnover, and a keener eye on productivity and costs. Regular communications about business goals, stock valuations, and governance invite participants to think like shareholders. In practice, companies that couple an ESOP with town halls or board observer seats empower employees to connect daily tasks with long-term value creation.

6.2 Tax Incentives and Financial Benefits

ESOPs offer generous tax breaks on both sides of the ledger:

• Employer Deductions: Contributions of stock or cash (to repay ESOP debt) are tax-deductible, including dividends passed through to participants.
• Seller Rollovers: In C corporations, selling shareholders can defer capital gains by reinvesting proceeds in qualified securities under IRC Section 1042.
• Participant Growth: Employees pay no tax on allocations until distributions, and they can choose a lump-sum or installment payout, potentially rolling proceeds into an IRA to continue deferring taxes.

These incentives can lower a company’s after-tax cost of capital and create a retirement asset that grows in alignment with corporate success.

6.3 Structuring an ESOP for Succession Planning

An ESOP often underpins a founder’s exit strategy. A typical timeline might look like this:

1. Feasibility & Valuation (6–12 months): Engage financial and legal advisors to project transaction costs and tax impacts.
2. Plan Design & Financing (3–6 months): Secure a loan, draft plan documents and set up the ESOP trust.
3. Share Purchase & Allocation (closing): The ESOP acquires shares; participants receive allocations based on compensation or tenure.
4. Repayment & Vesting (5–7 years): Company contributions repay the ESOP loan, and employees vest according to the schedule.

By phasing in ownership, a business can transfer equity on terms tailored to cash flow, while preserving operational continuity.

6.4 Administration Requirements and Compliance

Maintaining an ESOP goes beyond routine contributions:

• Annual Stock Valuations: To set share prices for participant statements and transactions, an independent appraisal is required each plan year.
• Participant Statements & Communications: ERISA mandates that participants receive clear disclosures, including an annual explanation of how their ESOP interest is determined.
• Fiduciary Oversight: Named fiduciaries (trustees, compensation committees) must act prudently—selecting service providers, monitoring plan expenses, and avoiding conflicts of interest.
• Regulatory Filings: The ESOP trust is subject to Form 5500 reporting and, in many states, additional securities-law filings when shares change hands.

Partnering with a specialized TPA and qualified ESOP counsel ensures these obligations are met promptly, keeping your ESOP compliant and focused on driving both retirement and business objectives.

7. SIMPLE IRA Plans

Savings Incentive Match Plan for Employees (SIMPLE) IRAs offer small businesses (100 or fewer employees) a low-cost, low-complexity way to provide a retirement benefit. Unlike a 401(k), a SIMPLE IRA has minimal paperwork, immediate vesting of employer contributions, and no annual Form 5500 filing—making it an attractive “starter” plan for growing companies.

7.1 Eligibility Criteria for Employers and Employees

To adopt a SIMPLE IRA, you must meet these basic requirements:

• Employer headcount: 100 or fewer employees who earned at least $5,000 in the prior calendar year.
• Plan year: Can be calendar-year or fiscal-year, as long as it’s consistent.
• Employee participation: Any employee who received at least $5,000 in compensation during any two preceding years and is expected to earn $5,000 in the current year.
• Notice requirement: Employers must notify eligible employees (using IRS model notice) at least 60 days before the start of each plan year.

These straightforward rules eliminate much of the testing and nondiscrimination concerns that come with larger plans.

7.2 Contribution Rules and Employer Matching Options

SIMPLE IRAs blend employee deferrals with an employer “mandated” contribution:

• Employee salary deferrals: Up to $16,500 in 2024.
• Catch-up contributions: Participants aged 50+ can add up to $3,500, bringing their total to $20,000.
• Employer contributions (choose one):
  • Dollar-for-dollar match on up to 3% of each employee’s compensation, or
  • Nonelective contribution equal to 2% of compensation for all eligible employees.

Because employer contributions vest immediately, employees own 100% of every dollar as soon as it’s deposited.

7.3 Advantages and Trade-Offs Compared to 401(k)

Why choose a SIMPLE IRA over a 401(k)?

Advantages:

• Low setup cost and minimal annual maintenance.
• No Form 5500 filing, nondiscrimination or top-heavy testing.
• Employer contribution vesting is immediate.

Trade-offs:

• Lower overall deferral limit than 401(k) plans.
• No Roth option and no in-plan loan provisions.
• Employer must contribute every year—regardless of profitability.

This simplicity can save time and legal fees, but sponsors must be comfortable with the mandatory employer contribution.

7.4 Setup and Maintenance Simplified Process

Getting a SIMPLE IRA up and running involves just a few steps:

1. Adoption Agreement: Execute IRS Form 5304-S (employer chooses the trustee) or 5305-S (IRS selects the trustee).
2. Employee Notice: Distribute the IRS model notice at least 60 days before the plan year begins.
3. Trustee Selection: Establish individual IRA accounts at your chosen financial institution.
4. Contribution Schedule: Coordinate payroll deferrals and employer contributions—no later than the due date of your business’s tax return (including extensions).
5. Annual Reminder: Re-send the deferral election notice between November 2 and December 31 to allow employees to change elections for the upcoming year.

By following these simple steps—and leveraging a knowledgeable TPA to handle notices and administrative details—you can offer a straightforward, tax-advantaged retirement benefit without the complexity of larger plans.

8. SEP IRA Plans

A Simplified Employee Pension (SEP) IRA lets employers contribute to traditional IRAs set up for themselves and their employees. SEPs combine the simplicity of an IRA with higher contribution limits, making them a popular choice for self-employed individuals and small businesses that want a flexible, low-cost retirement solution without the administrative burden of larger plans.

8.1 Overview and Ideal Participants for SEP IRAs

SEP IRAs are funded entirely by the employer—employees make no salary deferrals. That structure makes SEPs especially well-suited for:

• Self-employed individuals and freelancers who want to maximize retirement contributions in profitable years.
• Small-business owners looking for a straightforward way to reward staff without complex testing or annual filings (unless the plan grows large).
• Businesses with fluctuating cash flow, since contributions are discretionary; you can decide each year whether and how much to contribute based on profitability.

Eligibility is broad: any employee who meets the plan’s compensation requirement (usually at least $750 in 2024–2025) and age threshold (commonly 21) must receive the same percentage of compensation as the owner.

8.2 Contribution Limits and Calculation Methods

Employers can contribute up to the lesser of:

• 25% of each eligible employee’s compensation, or
• $70,000 for the 2025 plan year.

Contributions must be made on a uniform percentage basis—every eligible participant, including the owner, receives the same rate of compensation. For example, if you contribute 15% of your own salary, you must also allocate 15% of each employee’s pay to their SEP IRA.

8.3 Tax Treatment and Filing Requirements

• Employer Contributions are tax-deductible, reducing your business’s taxable income in the year they’re made.
• Tax-Deferred Growth: Earnings in each participant’s SEP IRA compound tax-deferred until withdrawal.
• Reporting:
  • Establish the plan using IRS Form 5305-SEP—no annual submission required.
  • If total plan assets exceed $250,000 at year-end, you must file Form 5500-EZ with the Department of Labor.

Because SEP IRAs bypass most nondiscrimination and top-heavy testing, they streamline compliance for small employers.

8.4 Step-by-Step Guide to Establishing a SEP IRA

1. Adopt the Plan: Complete and sign IRS Form 5305-SEP by your business’s tax-return due date (including extensions).
2. Notify Employees: Provide each eligible employee with a copy of the completed Form 5305-SEP.
3. Open Accounts: Have participants establish SEP IRAs at your chosen financial institution—each SEP contribution is made directly into these IRAs.
4. Fund Contributions: Deposit employer contributions by the employer’s tax-return deadline (including extensions).
5. Maintain Records: Keep plan documents, employee notices, and contribution records on file. If assets surpass $250,000, prepare and submit Form 5500-EZ.

By following these steps, you can offer a high-limit, tax-efficient retirement benefit with minimal ongoing administration—ideal for businesses that value simplicity and flexibility.

9. 403(b) Plans

A 403(b) plan is a tax-advantaged retirement program for employees of public schools, certain tax-exempt organizations, hospitals and churches. Similar to a 401(k), participants make salary deferrals into the plan, choosing from annuity contracts or mutual fund investment options. Employers can add matching or non-elective contributions, and since 403(b) plans often have simpler testing requirements than 401(k)s, they’re a popular choice in the nonprofit and education sectors.

9.1 Who Qualifies for 403(b) Plans

Eligible sponsors include:

• Public school systems and colleges
• Charitable organizations described under IRC Section 501(c)(3)
• Churches and qualified church-controlled organizations
• Certain hospitals and medical centers

Employees of these entities can enroll once they meet any employer-set eligibility rules, such as minimum service or hours worked.

9.2 Traditional vs. Roth 403(b) Contributions

Participants generally choose between two tax treatments:

• Traditional 403(b)

  • Contributions reduce taxable income in the year they’re made.
  • Distributions in retirement are taxed as ordinary income.

• Roth 403(b)

  • Contributions are made with after-tax dollars.
  • Qualified withdrawals (after age 59½ and a five-year holding period) are tax-free.

Offering both options gives employees flexibility to manage their current versus future tax burden.

9.3 Investment Options Available

403(b) plans typically offer:

• Annuity Contracts: Insurance-company contracts that guarantee a minimum interest credit.
• Mutual Funds: Professionally managed portfolios spanning equities, bonds or target-date funds.
• Custodial Accounts: Similar to mutual funds, but held through a custodian rather than an insurance carrier.

A diverse menu allows participants to build a portfolio that fits their risk tolerance and time horizon.

9.4 Contribution Limits and Catch-Up Rules

Deferral limits for 2025 mirror those of 401(k)s:

• Employee elective deferrals up to $23,500.
• Age-50+ catch-up contributions of up to $7,500 (total $31,000).

In addition, long-service employees with at least 15 years of service at the same employer may qualify for a special catch-up of up to $3,000 per year, subject to a lifetime cap of $15,000. These extra catch-ups can significantly boost savings for tenured staff.

9.5 Plan Setup and Fiduciary Considerations

Launching a 403(b) involves several key steps:

1. Plan Document: Draft a written agreement specifying eligibility, contribution formulas and distribution rules.
2. Vendor Selection: Choose insurance carriers or mutual fund families, negotiate fees, and confirm investment lineups.
3. Fiduciary Roles: Designate a 402(a) named fiduciary to oversee plan administration and select a 3(38) investment manager if desired.
4. Required Disclosures: Provide participants with a Summary Plan Description, fee disclosures and annual notices.
5. Form 5500 Filing: File Form 5500 if plan assets exceed $250,000 (or if the employer makes nonelective contributions).

By partnering with an experienced TPA, you can ensure all documents, vendor agreements and ERISA-required disclosures are in place—minimizing liability and keeping your focus on your organization’s mission.

10. 457 Plans

A 457 plan is a deferred‐compensation arrangement available to employees of state and local governments—and in some cases, select nonprofit organizations. Similar to a 401(k), it allows participants to defer part of their salary into a tax‐advantaged account, but it comes with unique catch‐up opportunities and penalty provisions that can make it especially attractive for public‐sector workers.

10.1 Eligibility and Types of 457 Plans

There are two main flavors of 457 plans:

• Governmental 457(b): Offered by state and local governments—including municipalities, school districts, and public safety agencies.
• Non‐Governmental 457(b): Available to employees of certain tax‐exempt organizations; these plans often carry additional restrictions on rollovers and distributions.

Each type must meet IRS rules around eligibility, deferral elections and distribution events. Generally, any employee of a participating agency can enroll once they satisfy the plan’s service or hour requirements.

10.2 Deferral Limits and Special Catch‐Up Provisions

For 2025, the standard elective‐deferral limit is $23,500. Participants aged 50 or older can tack on an additional catch‐up contribution of up to $7,500, bringing their total to $31,000. Governmental 457(b) plans also offer a unique “final‐three‐year catch‐up”:

• During the three calendar years before normal retirement age, participants may contribute up to twice the standard limit—potentially deferring up to $47,000 per year.

These features let long‐tenured employees accelerate savings as they approach retirement.

10.3 Early Withdrawal Rules and Penalty Exceptions

Unlike most retirement plans, 457(b) withdrawals aren’t slapped with a 10% early‐withdrawal penalty if taken before age 59½. All distributions are still subject to ordinary income tax, but this penalty exception can provide much‐needed flexibility for participants who face unexpected expenses or choose to retire early.

10.4 Implementation Steps for Employers

Rolling out a 457 plan involves:

1. Plan Document Drafting – Prepare an IRS‐approved plan document that specifies eligibility, deferral limits and distribution events.
2. Vendor Selection – Choose a recordkeeper or investment platform that supports the plan’s investment lineup and administrative portal.
3. Enrollment Materials – Develop clear communications, including election forms and a Summary Plan Description, so employees understand how and when to defer.
4. Payroll Integration – Coordinate with payroll to ensure accurate deferrals and employer contributions (if any).
5. Ongoing Education – Host workshops or webinars each year to walk participants through catch-up options, distribution rules and investment choices.

By following these steps—and partnering with an experienced TPA—you’ll give your workforce access to a flexible retirement savings vehicle designed for the public‐sector environment.

11. Money Purchase Plans

A money purchase plan is a defined contribution retirement vehicle in which the employer is required to make regular, fixed contributions on behalf of each eligible employee. Unlike a profit sharing plan—where contributions may vary year‐to‐year—a money purchase plan obligates the sponsor to fund a predetermined percentage of payroll, offering both employer and participants a reliable path toward retirement savings.

11.1 Structure and Fixed Employer Contributions

Money purchase plans operate under a straightforward formula:

• Employer Contribution Rate: Typically set as a fixed percentage of each participant’s compensation (for example, 10% of pay).
• Vesting Schedule: While contributions often vest immediately, some plans may impose a graded or cliff schedule up to five years.
• Participant Accounts: Each employee maintains an individual account that grows with employer deposits and investment returns.

This design ensures every eligible worker receives the same benefit rate, simplifying communication and administration.

11.2 Advantages for Predictable Savings Goals

Predictability is the hallmark of a money purchase plan:

• Employee Confidence: Participants can forecast their retirement account growth, knowing exactly how much will be contributed each pay period.
• Employer Budgeting: Organizations can plan payroll expenses with certainty, since contributions don’t depend on year‐end profits or discretionary decisions.
• Enhanced Retention: A fixed employer commitment can signal a long‐term investment in staff, which may bolster morale and loyalty.

For companies seeking stability in both forecasting and benefit design, a money purchase plan offers clear advantages over more variable contribution schedules.

11.3 Tax Benefits and Employer Responsibilities

Under IRS rules and ERISA:

• Tax Deductibility: Employer contributions are fully tax‐deductible in the year they are made, lowering corporate taxable income.
• Mandatory Funding: Unlike discretionary plans, money purchase plans require the sponsor to contribute the agreed percentage regardless of profitability—failure to fund can trigger excise taxes.
• Non‐Discrimination Testing: These plans must pass coverage and contribution‐percentage tests to ensure they don’t favor highly compensated employees.

A trusted TPA can coordinate annual testing, ensure funding deadlines are met, and calculate required contribution levels based on payroll.

11.4 Setup Requirements and Documentation

Launching a money purchase plan involves several administrative steps:

1. Plan Document Adoption: Execute an ERISA‐compliant plan document detailing contribution rates, eligibility, vesting and distribution rules.
2. Employee Notification: Provide a Summary Plan Description (SPD) within 90 days of adoption, and distribute any required election forms.
3. Funding Schedule: Establish consistent deposit timelines—often each payroll period or quarterly—and adhere to IRS deadlines (generally by the employer’s tax‐return due date, including extensions).
4. Ongoing Administration: File Form 5500 annually, maintain participant statements, and handle distributions or loans if the plan allows.

Partnering with a specialized TPA can streamline these tasks—drafting documents, managing notices, and keeping your plan in full compliance—so you can focus on running your business.

12. Multiple Employer Plans (MEPs)

Managing a retirement plan on your own can mean hefty administration fees, duplicative compliance testing, and significant fiduciary exposure. Multiple Employer Plans (MEPs) offer a smart alternative: unrelated employers band together under a single plan document and sponsor, sharing costs, pooling resources, and streamlining ERISA responsibilities. Participants receive the same tax-advantaged benefits as in a standalone plan, but sponsors enjoy scale efficiencies and reduced liability.

12.1 Concept of Multiple Employer Plans

A MEP is a qualified retirement plan maintained by two or more employers—without a common corporate parent—under one master plan. Instead of each company drafting separate documents, the plan sponsor issues a unified plan document, Summary Plan Description and Form 5500 filing. Employers retain individual participant accounts, but TPA services, nondiscrimination testing and notice distribution are performed centrally, cutting out redundant efforts.

12.2 Cost Sharing and Administrative Efficiencies

Joining a MEP delivers clear economies of scale:

• Shared TPA and recordkeeper fees lower per-employer costs
• One set of nondiscrimination and coverage tests replaces multiple cycles
• Centralized generation and distribution of SPDs, SARs and other notices

As fixed costs amortize across participants, each employer saves both hard dollars and internal staff time.

12.3 Fiduciary Relief and Liability Protection

Under a MEP, key fiduciary duties shift from individual sponsors to the plan’s named fiduciary:

• The MEP sponsor (often a pooled plan provider) serves as the ERISA 402(a) fiduciary
• 3(16) administrative responsibilities—recordkeeping, filings, notices—reside with the sponsor
• Investment oversight and plan amendments are managed centrally

This structure mitigates each employer’s ERISA liability while ensuring participants benefit from professional governance.

12.4 Eligibility, Joining Process, and Plan Governance

Whether you join an existing MEP or form a Pooled Employer Plan (PEP), the steps are straightforward:

1. Due Diligence: Review plan design, investment lineup, fees and governance model with the sponsor or PEP provider.
2. Participation Agreement: Sign to define rights, obligations and cost allocation.
3. Adoption Agreement: Execute the master plan document, integrating your workforce data.
4. Ongoing Governance: Employers may sit on a joint governance committee; the sponsor handles annual filings, amendments and ERISA compliance.

By uniting under a MEP or PEP, your business can cut costs, streamline administration and shift fiduciary duties to a dedicated provider. To explore how a MEP might fit your needs, visit our home page.

Choosing the Right Retirement Accounts for Your Business

Every organization has its own mix of priorities—whether that’s maximizing tax deductions, offering workforce-friendly benefits or keeping administration simple. No single retirement plan ticks every box, so the key is matching your company’s size, cash-flow needs and employee demographics with the strengths of each option. For instance, a cash balance plan might serve a high-earning owner with predictable profits, while a SIMPLE IRA could be a low-hassle starter plan for a small team.

Begin by mapping your business’s financial profile and workforce goals:

• Company size and growth trajectory: Larger headcounts may justify the complexity of a defined benefit pension, while a handful of employees could thrive under a SEP IRA or solo 401(k).
• Cash-flow flexibility: Discretionary plans—like profit sharing or SEP IRAs—let you adjust contributions based on profitability, whereas money purchase plans and defined benefit designs require fixed funding.
• Employee demographics: Younger staffs often value Roth options and auto-enrollment features, whereas long-tenured or public-sector workers might benefit most from the extra catch-ups in 403(b) or 457 plans.
• Administrative bandwidth: If in-house resources are limited, consider MEPs or partnering with a TPA to shoulder ERISA testing, filings and fiduciary oversight.

Once you’ve narrowed your choices, evaluate how different plans can complement each other. Many businesses pair a 401(k) with a profit sharing plan to reward performance, or layer a cash balance plan on top of a 401(k) to supercharge owner savings. The right combination not only balances cost and complexity but also sends a powerful retention signal to your team.

Ready to build a retirement package that fits your business—without getting bogged down in paperwork and compliance? Connect with Summit Consulting Group, LLC for expert guidance on plan design, fiduciary services and seamless administration.