401(k) vs. Other Retirement Plans: Making the Right Choice for Your Employees

401(k) vs. Other Retirement Plans: Making the Right Choice for Your Employees

Employers of various sizes must attract skilled workers from competitors by providing extensive employee benefits, with retirement plans being crucial. Employers are confronted with the difficult task of choosing the retirement plan that aligns with their employees’ needs from a range of 401(k) plans and other choices. The 401(k) retirement plan is a commonly chosen  option for millions of Americans. In the United States, approximately three-quarters of eligible workers participate in their employer-provided 401(k) plans.
This article explores some of the common retirement plans, so keep reading to learn more.

Traditional 401(k) Plans: Popular But Not Always the First Choice

A 401(k) plan remains one of the most popular employer-sponsored retirement savings plans in America, providing employees with defined contribution plans through which to save for retirement. 
Employee contributions determine their retirement nest egg accumulation; any employer matching contributions further increase it. Employees often opt to defer part of their pre-tax salary into individual 401(k) accounts as contributions reduce taxable income and provide immediate tax savings. 
Employer matching contributions are an effective incentive, effectively providing free money and incentivizing employee participation in 401(k). Furthermore, investments within the plan grow tax-deferred until withdrawal at retirement age.

Other Types of 401k Plans

SIMPLE and Roth 401(k) retirement savings plans each offer tax benefits; however, each has unique contribution limits and eligibility requirements that differ significantly. Roth 401(k)s offer tax diversification benefits to individual investors by permitting tax-deferred contributions with tax-free withdrawals during retirement, while SIMPLE 401(k)s were developed specifically for small companies. 
Employer contributions have greater flexibility with lower limitations imposed by both employers and employees, providing for easier management and reduced limits for contributions from both sides. The safe harbor 401k, on the other hand, offers similar benefits as traditional 401(k), yet requires significantly less administrative work from employers as contributions must be matched or contributed directly from them to employee accounts, thus meeting IRS nondiscrimination regulations.

Other Retirement Plans


  • Traditional pensions: Traditional defined benefit pension plans provide employees with guaranteed monthly payouts in retirement based on salary and years of service, although funding and investment risk are entirely managed by employers; making these traditional plans less common today in businesses across industries. They may provide employees with security; however, they can be costly and administratively complex for employers to administer and upkeep.
  • Simplified employee pension (SEP-IRA): This plan is suitable for small businesses with 25 or fewer employees, in which employers make direct contributions to individual IRAs set up for eligible workers. SEP-IRAs provide more convenience and less administration cost along with employee investment control; yet, they have lower contribution limits and employers are not required to contribute as frequently.
  • Savings Incentive Match Plan for Employees (SIMPLE IRAs): Like the SEP-IRAs, SIMPLE IRAs are also a type of incentive match plan. These offer small businesses with 100 or fewer employees special tax advantages. The employer can choose to match contributions made by eligible employees directly, or they may opt not to match and instead contribute at set levels for all workers who are qualified. Similar to the SEP type, SIMPLE IRAs also have limits on how much you can contribute but provide tax advantages for both sides involved in this plan as well.


Beyond Selecting Benefit Plans: Composing an Inclusive Benefits Package

Employers should look beyond retirement plans when building employee benefits packages. Employers should take other strategies into consideration as part of the employee benefits strategy:

  • Automatic enrollment: Enrolling employees automatically with an opt-out option can significantly boost participation rates in retirement plans.
  • Financial wellness programs: Conducting educational workshops or providing financial counseling services can equip employees to make well-informed investment choices within their retirement plans.
  • Investment advisory services: Accessing investment advisors can ease employee concerns about participating in complex retirement plans while encouraging participation.



One-size-fits-all approaches to retirement plans may not yield optimal results in today’s highly competitive job market. By carefully considering their workforce’s individual needs and demographics, employers can tailor retirement plan offerings accordingly and increase impact; for instance, by understanding the age distribution, salary ranges, and risk tolerance of employees. Those nearing retirement might prioritize traditional pension plans or 401(k)s with matching contributions.

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