Employer Retirement Plans: Many Options
Many companies offer a retirement plan of one kind or another to their employees, but some businesses may feel they are too small to offer one, or that the plans are too expensive or complex to run. Fortunately, retirement plans come in many flavors, and there’s a good chance you can find one that’s right for you. Below are a few options.
Tried and true: The 401(k)
This plan goes back to 1978, and it’s flexible enough to be practical for many different kinds of companies. In general, these plans allow employees to put away money from their paychecks, typically on a pretax basis. Employers may match the employees’ contributions, and these contributions are deductible on the employer’s federal income tax return. These contributions usually are vested over time. That is, an employee’s right to employer contributions becomes nonforfeitable only after a period of time.
However, traditional 401(k) plans do come with nondiscrimination testing, which is both complex and strict. As the IRS says, “Plan sponsors must test traditional 401(k) plans each year to ensure that the contributions made by and for rank-and-file employees are proportional to contributions made for owners and managers.”
Keep it simple: The safe harbor 401(k)
Companies can get around the pesky nondiscrimination testing with the so-called safe harbor version. This is similar to the traditional 401(k), explains the IRS, but it must provide for employer contributions that are fully vested when made. However, the safe harbor 401(k) plan is not subject to the complex annual nondiscrimination tests that apply to traditional 401(k) plans.
Helping the small business: SIMPLE 401(k) plans
This version is specifically aimed at small businesses that want to provide the same retirement power that big companies do. As with the safe harbor plan, a SIMPLE 401(k) plan is not subject to the annual nondiscrimination tests. And again, the employer is required to make employer contributions that are fully vested. This type of 401(k) plan is available to employers with 100 or fewer employees who received at least $5,000 in compensation from the employer for the preceding calendar year.
Lean and flexible: Simplified Employee Pension plans
A Simplified Employee Pension plan allows employers to contribute to traditional individual retirement accounts, called SEP-IRAs, set up for employees. It works for businesses of any size; even self-employed individuals can set one up. The costs and amount of paperwork are small compared with those for other plans. Only the employer contributes to the
SEP-IRAs, and the employees are always 100% vested in the accounts. The special advantage of this type of plan is that the employer doesn’t have to commit to a specific contribution. In a good year, the employer can make big contributions; in a lean year, it can cut back. (However, the contribution rate must be the same for all employees.) And there is a tax break, with limits. Notes the IRS: “The most you can deduct on your business’s tax return for contributions to your employees’ SEP-IRAs is the lesser of your contributions or 25% of compensation.”
Small but helpful: The payroll-deduction IRA
With this plan, employees establish a traditional or Roth IRA with a financial institution and then authorize a payroll deduction amount for it. A business of any size — even a self-employed individual — can establish this plan. Sound easy? It is. The IRS calls it “probably the simplest retirement arrangement that a business can have.” There’s virtually no paperwork. However, there are no deductions for the company, and it doesn’t have the same “bang” that another plan might. Indeed, the IRS says, such a plan “may not create the same goodwill with employees as a 401(k) or other workplace retirement plan.”
So is this all you need to know? Not even close! There are many additional rules, exceptions and caveats. Subtle changes may occur from year to year. However, the key takeaway is that no matter what kind of company you have, there’s probably a retirement plan that works for you. Work with a qualified benefits company to research the best option for your situation.
©YC Partners 2026
