Employer Sponsered Plan
Advantages and Disadvantages

Advantages

Disadvantages

  • The participant is fully vested in elective deferrals at all times.

  • Same tax deduction and deferral of income advantage as a traditional IRA

  • An employee can designate some or all elective deferrals as Roth (not excluded from income) that are generally subject to the same taxation under the Roth IRA rules.

  • The maximum contribution allowed is generally greater than an IRA.

  • Elective deferral limits are greater than SIMPLE IRAs.

  • Employers often match dollar-for-dollar employee elective deferrals up to certain percentages, providing employees incentives to participate in the retirement plan.

  • Elective deferrals through payroll withholding make it easier for employees to save for retirement.

401(k)
  • Complexity and restrictions placed on highly compensated employees make it difficult and sometimes expensive to administer.

  • Key employees do not always receive the full benefit of allowable elective deferrals. These restrictions may not apply to certain safe harbor 401(k) plans. 

403(b)
  • The participant is fully vested in elective deferrals at all times.

  • Same tax deduction and deferral of income advantage as a traditional IRA. 

  • An employee can designate some or all elective deferrals as Roth (not excluded from income) that are generally subject to the same taxation under the Roth IRA rules.

  • Elective deferral limits greater than SIMPLE IRAs.

  • Employers often match dollar-for-dollar employee elective deferrals up to certain percentages, providing employees incentives to participate in the retirement plan.

  • Elective deferrals through payroll withholding make it easier for employees to save for retirement.

  • Limited as to what types of employers are eligible to offer a 403(b) plan to employees. Generally available only for employees of certain tax-exempt organizations

Cash Balance Plans
  • Cash Balance Plans offer guaranteed pension benefits for employees

  • These plans can offer unique incentives to attract and retain employees.

  • Your business has some flexibility with its contributions to hypothetical accounts.

  • These plans have higher limits on contributions.

  • Cash Balance Plans allow more portability to employees that are fully vested.

  • The plan can be less difficult to maintain than other retirement plans.

  • Record-keeping costs associated with cash balance plans may be higher than with a traditional pension plan.

  • Growth rates are set low and conservative allowing limited growth. 

  • A cash balance plan is not always more cost-efficient than a traditional pension plan, so it is best to consult with a retirement specialist as to whether a cash balance plan will save you more money compared to a traditional pension plan or other retirement plans. 

*401(k) & 403(b) List taken from The Tax Book 2020 edition