Navigating Retirement Plan Options: A Guide for Employers
November 4, 2025
Navigating Retirement Plan Options: A Guide for Employers
A retirement plan is a powerful tool for your business or organization. It’s key to attracting outstanding talent, motivating your best people, and building a loyal, productive workforce. However, finding the right retirement plan option involves navigating a maze of acronyms and IRS rules. How do you choose between a 401(k), 403(b), 401(a) and 457(b) to find the best fit? To get you started, here’s a simple, straightforward guide to these options.
401(k) Plans: Versatility for the Private Sector
401(k) plans are the most common retirement savings vehicles chosen by for-profit, private sector businesses. They can be ideal for companies that seek flexibility, employer matching options, and a range of features to engage employees. 401(k) plans come in several forms, including:
Traditional 401(k) plans offer tax advantages, such as pre-tax contributions plus tax-deferred growth. Employer matching contributions are permitted.
Roth 401(k) plans allow eligible employees to make after-tax contributions. Withdrawals in retirement are tax free.
Safe harbor 401(k) plans give companies with stable or predictable cash flow the benefit of fewer administration and compliance requirements. Nondiscrimination testing is not required, and highly compensated employees can contribute the maximum allowed without restrictions.
Simple 401(k) plans are designed for small businesses with 100 or fewer employees and offer simplified administration.
Tiered match 401(k) plans offer the flexibility of different employee contribution levels and employer match formulas, based on factors such as job classifications, tenure or seniority.
Profit-sharing 401(k) plans, also known as deferred profit-sharing plans, help employers contribute a portion of pre-tax profits to the retirement account of their employees at the end of their financial year.
403(b) Plans: Designed for Non-Profits and Educators
If your organization is a non-profit, public school, or religious institution, a 403(b) plan may be your go-to option. This plan type is specifically designed for tax-exempt organizations under section 501(c)(3) and public educational entities. Like the 401(k), it allows pre-tax contributions and tax-deferred growth. Employer matching contributions may be permitted but are less common than in 401(k) plans. Some 403(b) plans include catch-up contributions for long-tenured employees.
401(a) Plans: Mandatory and Employer-Driven
Common in the public and non-profit sectors, 401(a) plans are typically mandatory for eligible employees and require employer contributions. They offer less flexibility than 403(b) plans—no catch-up contributions and often more conservative investment options—but provide employers with greater control over eligibility and contribution levels.
457(b) Plans: Flexibility for Public Servants
457(b) plans are available to government employees, law enforcement, and certain non-profit executives. A key advantage is the flexibility around early withdrawals—participants who separate from service can access funds before age 59½ without penalty. Therefore, they’re commonly used as deferred compensation plans. 457(b) plans are also used to supplement 403(b) and 401(a) plans because the contribution limits are separate.
A Side-by-Side Comparison of Popular Retirement Plans
|
Feature |
401(k) |
403(b) |
401(a) |
457(b) |
|---|---|---|---|---|
|
Who can offer it? |
For-profit businesses |
501(c)(3) nonprofits, public schools, hospitals, universities |
Government agencies, educational institutions, certain nonprofits |
Primarily state/local governments; some nonprofits for select employees |
|
Employee contributions |
Voluntary salary deferral |
Voluntary salary deferral |
Employee contributions may be mandatory |
Voluntary salary deferral |
|
Employer contributions |
Optional (match or profit sharing) |
Optional but common in larger nonprofits |
Typically, required or fixed formula |
Allowed but varies by plan sponsor |
|
2025 Contribution limits |
$23,500 standard |
Same as 401(k) |
The lesser of $70,000 or employee’s annual compensation |
Same as 401(k) and 403(b) |
|
Plan flexibility |
Highly flexible design |
Flexible, slightly simpler administration than 401(k) |
Employer controls plan design and formula |
Very flexible supplemental plan |
|
Nondiscrimination testing |
Yes (unless safe harbor) |
Sometimes (Depends on ERISA status) |
None for Non-ERISA plans. |
Not required for government plans |
|
Unique features |
Profit sharing available |
15-year service catch-up for long-tenured employees |
Mandatory or structured contributions |
Limits do not aggregate with 401(k)/403(b); penalty-free separation withdrawals |
|
Best for |
Privately owned employers offering competitive benefits |
Nonprofits or schools that want lower administrative burden |
Public institutions needing baseline retirement coverage |
Government employers or nonprofits offering additional savings opportunities |
|
Withdrawal rules |
10% penalty before separation or age 59½ unless exception |
10% penalty before separation or age 59½ unless exception |
Distribution rules generally match 403(b) and 401(k) rules. |
No early withdrawal penalty at separation from service or age 59 ½. |
|
Common plan pairings |
Usually, stand-alone |
Often paired with 457(b) |
Often paired with 403(b) or 457(b) |
Frequently supplements 403(b) or 401(a) |
Which Retirement Plan Is Right for You?
The choice is likely to depend on several factors, such as:
- Your business category, whether private, public, or nonprofit.
- Your administrative goals, such as greater simplicity or maximum participation.
- The demographics of your employees, including their tenure and compensation level.
- Your need to meet recruitment and retention objectives with plan features such as profit sharing and employer matching contributions.
Let Daybright Help You Choose
Daybright cuts through the complexity of retirement plans to find the option that best aligns with your organizational goals, employee demographics and budget. Rely on our expertise in plan design, management, and compliance to make sure your chosen retirement plan solution becomes a powerful, efficient and strategic asset for your business.