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Benefits of Sponsoring a Retirement Plan

The benefits of being a retirement plan participant are well-documented, but the perks available to the sponsoring employer are often overlooked.

In offering a retirement plan, plan sponsors can enjoy the advantages of tax deductions and credits, flexible design options and attraction and retention of employees, along with the benefits of being a participant in the plan.

Tax Benefits: When an employer makes a matching, safe harbor, profit sharing, defined benefit or money purchase contribution to the plan, they may deduct the contribution on their tax return. On top of that, any expenses toward plan administration are also tax-deductible so long as they’re paid by the employer—if the plan pays the expenses, the sponsor can’t deduct those fees.

In some cases, tax credits may be available for small businesses to cover the costs of plan startup or automatic enrollment expenses.

Pre-tax contributions made by participants can also impact the employer’s taxes. These contributions will reduce an employee’s gross taxable income, which in turn lowers the corresponding taxes (such as FICA) paid by the employer.

Specific questions regarding tax deductibility should be directed to your tax advisor.

Flexible Design Options: In addition to providing retirement benefits for employees, the plan can be designed to meet the employer’s goals as well. Some designs require the employer to make a set contribution each year; as a result, several compliance tests can be avoided, allowing the highly compensated employees (HCEs) to contribute a higher amount.

Other designs might allow for flexibility in the amount of contributions. For example, when the employer needs a bigger tax deduction, a larger contribution can be made; alternatively, a lower contribution could be made when money is required elsewhere.

Attraction and Retention: Gone are the days of employees working for a single employer their entire career and retiring with a company-sponsored pension. Today’s employees want portability and control over their retirement. A company’s benefits package, including retirement benefits, can be the deciding factor when considering a position. The employee’s perception of the available benefits may even be more critical than the benefits themselves.

An employer can’t just focus on attracting new talent; they are also competing with other companies to keep their current staff. Keeping up to date with an industry’s retirement trends and keeping employees apprised of their options may help to alleviate concerns in these areas.

Benefits of Participation: As an employee, a company’s owner may be able to participate in the plan, thereby receiving the accompanying benefits. If the plan includes an employer match, that contribution can be considered additional compensation. For example, a 4% salary deferral might be matched with an additional 4% employer contribution, providing extra compensation that is applied to the owner’s retirement goals.

Also consider the potential tax benefits, as pre-tax contributions can be a way to defer personal income taxes. On the other hand, earnings on after-tax or Roth contributions might never be taxed. In these ways, the plan design considerations mentioned previously can significantly impact the retirement account of the owner.

Whatever reason inspires you to sponsor a retirement plan, we are here to help. Whether it’s the potential for tax breaks, providing value for your employees or simply taking advantage of plan benefits for yourself, we want to help you maximize the value of being a plan sponsor. If you have any questions on plan advantages, please feel free to reach out to us.

Features of a 401(k) Plan

401(k) plans are a popular way to save for retirement. Although many people participate in these plans, the flexibility allowed by plan provisions ensures each can be unique. Understanding the features and options available for a 401(k) plan will help you design your plan so that it works best for you and your participants.

401(k) refers to the section of the Internal Revenue Code that allows a participant to have money withheld from their wages (salary deferrals) to be put into a tax-deferred trust. The contributions and earnings are taxed when withdrawn from the plan. This encourages automatic saving for retirement, with the added expectation that an individual’s tax rate will be lower during their retirement years.

A 401(k) plan sponsor can also choose to allow participant Roth contributions. Like the standard pre-tax salary deferrals, these are contributed to the plan and earmarked for retirement; the difference is that Roth contributions are taxed in the year they are withheld. The advantage to this is that earnings are tax-free so long as they meet the requirements of a qualified Roth distribution, which will account for most distributions taken by individuals of retirement age. This option works best for participants who start deferring at an early age or whose tax rate is expected to be higher in retirement.

To participate in a 401(k) plan, an employee must meet the eligibility and entry requirements. Plan eligibility commonly incorporates a service requirement (based on hiring date and/or hours worked) and an age requirement, for example, eligibility upon hire for individuals age 21, or eligibility after working 1,000 hours in a 12-month period. The entry requirements define when the participant enters the plan after they become eligible; this could range from immediately to the next semi-annual entry date. These entry and eligibility criteria provide the plan sponsor with another avenue for plan customization, offering the ability to balance employee engagement and retention against costs and administrative responsibilities.

What happens after the participant meets the eligibility and entry requirements? Ideally, they will complete the enrollment paperwork, choose a deferral amount and select their investment options. However, many won’t engage with the plan in this way. To address this, a plan may include automatic enrollment provisions to enroll the participant at a preset deferral rate. At the same time, the plan can direct those contributions into a Qualified Default Investment Alternative (QDIA), allowing savings and investment to begin even without direct employee input.

Employers may also opt to contribute money to the plan on the participants’ behalf. This can be done in the form of a company match and/or non-elective contributions, the latter of which does not require an employee deferral. While optional, these types of contributions can fulfill certain safe harbor requirements, which may allow the plan to avoid most nondiscrimination testing that would otherwise be needed to ensure it isn’t discriminating against the non-highly compensated employees. If the safe harbor provision is added to the plan document, these types of contributions may be required.

Profit sharing is another option for more flexible employer contributions. A profit sharing provision can allow a plan sponsor, at their discretion, to make an additional contribution to the plan to reward the participants for a profitable year or to reduce the employer’s tax liability. The method for allocating these funds to participants is outlined in the plan document; several are available. These can be as simple as an equal salary percentage or a flat dollar amount, but more complex strategies are available as well, which might allocate more to higher-earning individuals or those nearer to retirement age. Some options may be more advantageous than others depending on the owner and staff demographics.

A combo plan is when two plan types are paired together, typically for the purpose of more favorable testing. For example, it’s common practice to pair a 401(k) plan with a cash balance defined benefit plan for the purpose of allowing higher contributions for older employees and owners.

One last option worth considering is a participant loan program. A plan sponsor may choose to offer this feature, allowing participants to borrow against their account balance. These loans can increase confidence and flexibility by giving participants access to their savings if a need arises.

401(k) plans are an important tool to meet your and your employees’ retirement goals. This is largely due to their adaptability. The options we’ve discussed are just some of the ways a 401(k) plan can be customized to balance the needs of participants with the needs of the company. If you are interested in exploring alternatives for your plan, please contact us to discuss this further.

DOL’s New Paper Statement Requirement Begins in 2026: Key Changes for Plan Sponsors

A significant shift in retirement plan disclosure rules is coming soon, and employers should begin preparing now. In response to new regulations included under the SECURE 2.0 Act of 2022, the Department of Labor (DOL) will require certain pension benefit statements be furnished to participants on paper, even for those who currently receive electronic disclosures. This mandate, which represents one of the most notable updates to ERISA’s disclosure framework in years, applies to plan years beginning after Dec. 31, 2025.

To support plan administrators implementing these changes, the DOL issued Field Assistance Bulletin (FAB) 2026-02, which provides temporary enforcement relief and clarifies how the new paper statement rules interact with existing electronic disclosure safe harbors. The Department also released a notice titled “Requirement to Provide Paper Statements in Certain Cases – Amendments to Electronic Disclosure Safe Harbors,” outlining proposed updates to the 2002 and 2020 electronic delivery rules.

Together, these developments mean plan sponsors, administrators and recordkeepers will need to adjust their communication processes and prepare for increased paper mailings.

What SECURE 2.0 Requires

Beginning in 2026:

• Defined contribution (DC) plans must provide at least one paper pension benefit statement every calendar year.
• Defined benefit (DB) plans must provide one paper pension benefit statement every three calendar years.

Note that these requirements apply to participants who previously defaulted to electronic delivery. The only exception is for participants who actively elect to receive all disclosures electronically.

Proposed Changes to Electronic Disclosure Rules

To align existing rules with SECURE 2.0, the DOL has proposed updates relating to participant notices and electronic disclosures.

• One Time Initial Paper Notice for Newly Eligible Participants: Starting Jan. 1, 2026, individuals who first become eligible for a plan must be provided with a one time initial paper notice before they are defaulted to electronic delivery. This notice must explain the participant’s right to opt out of electronic delivery while also meeting the requirements put forth by the 2002 electronic disclosure safe harbor. Once this notice is provided, plans may continue using electronic delivery except for the required annual or triennial paper statements as listed above.
• Updates to the 2020 Electronic Disclosure Safe Harbor: The DOL also proposes that participants must be able to request electronic delivery of any paper statement. As such, paper statements must now include instructions for requesting electronic delivery, as well as contact information for the plan administrator.

These changes are intended to preserve participant choice while ensuring compliance with SECURE 2.0’s paper delivery mandate.

Temporary Enforcement Relief

The DOL will provide a good-faith compliance period while the rules are being finalized. During this transition, the Department will not focus on enforcement so long as reasonable efforts are made to comply with the mandate. This relief acknowledges the operational changes required for recordkeepers and plan sponsors.

What Plan Sponsors Should Do Now

• Review disclosure procedures to ensure paper statements can be produced and mailed on schedule.
• Coordinate with recordkeepers to confirm systems can track delivery preferences and generate compliant statements.
• Update participant communications to explain the new paper statement requirement and how to opt into electronic delivery.
• Monitor final rulemaking, as the requirements may be revised before adoption.

The DOL’s new paper statement requirements reflect a broader policy goal: ensuring all participants, including those less engaged with electronic communications, receive essential retirement information in a clear and accessible format. Though the change may increase administrative burdens, early preparation will help employers transition smoothly.

Upcoming Compliance Deadlines for Calendar-Year Plans