What Kind of Retirement Plan is Best for Your Plan Sponsor Client?

It’s that time of year again. Open enrollment at most organizations is now in session and  plan sponsor clients are considering offering a retirement plan to their employees. Whether your clients’ goals are to maximize their own pre-tax savings or offer meaningful, yet flexible benefits to their employees, there are many 401(k) or other options to meet their needs. Leverage this guide to help sponsors get the right type of plan based on their unique goals and business structure.


If a plan sponsor wants to…
…they should consider the following plan type(s):
Maximize the owner’s contributions 401(k) with a profit share feature

“Profit sharing” is a misnomer – the employer does not need to actually share “profits” from the business, but it would need to make some kind of contribution to each participant account.

Solo or individual 401(k) plan

Owner-only businesses with just one employee can create a Solo or Individual 401(k) plan. These plans do not  require  a  5500 if they have less than $250,000 in assets.

Cash balance plan

Employers who want to shelter more than the 401(k) plan IRS limit of $55,000 per year can offer a cash  balance  plan,  which  may allow employers to shelter more than $200,000. There are trade- offs to these plans as well as additional requirements  such  as higher expenses and more reporting and notice obligations.

Minimize the employer’s fiduciary liability 401(k) plan that meets section 404(c) ERISA requirements

For this goal, consider creating a 401(k) plan that meets the requirements of ERISA section 404(c). By allowing participants to self- direct their investments, plan sponsors can protect themselves from liability for any investment losses.

Maximize benefits for a certain group of employees, such as employees in a specific department 401(k) plan with a profit sharing component

If the demographics of your workforce would be suitable to a “new comparability” contribution, you could structure your profit sharing arrangement to reward certain groups of employees with a higher employer match


Provide a valuable employee benefit Plan with inclusive eligibility rules

Your plan can include liberal eligibility rules that would allow more employees to participate. This could mean making employees eligible earlier in their tenure or opening up options for your part time workforce.

Maximize employee participation Plans with matching and/or auto features

Consider providing matching contributions to encourage participation. Plan sponsors with uncertain cash flows can have flexibility in the amount and timing of their contributions. Additionally, auto features such as automatic enrollment and auto increase  have  shown  to  have a significant effect on participation rates. In addition, allowing rollovers from other retirement plans, catch-up contributions, and Roth contributions can also help.

Offer flexibility in plan contributions Any 401(k)

All 401(k) plans allow sponsors to make a discretionary match to the plan if and when financial conditions allow.

Minimize IRS testing requirements 401(k) with safe harbor

Consider a 401(k) safe harbor or a safe harbor automatic enrollment arrangement. Keep in mind that employer contributions to a safe harbor are 100% vested and are non-discretionary, so if the company has a bad year, the employer still needs to make the contributions.

Attract and retain college- debt ridden employees 401(k) with student loan repayment

Consider a 401(k) plan that incentivizes employees to participate in the plan so they can save for retirement while also paying off student loan debt. The IRS may now allow plans with employer matches for student loan repayments. The plan would have to meet certain legal requirements and likely receive specific IRS approval.