Watch: Most Employees Miss Their Full Benefits

The Ultimate Guide to Company Retirement Plans: What Every Leader Needs to Know

From 401(k)s to 457(b)s, here’s how to maximize the benefits your company offers, whether you’re running the business or building your career inside one.

Benefits can feel like alphabet soup: 401(k), 403(b), 457(b), SIMPLE, SEP, cash balance. Most leaders skim the guide, promise to read it later, then leave real money on the table. This field guide shows where the big levers are, what traps to avoid, and how to align your plan with your goals.

The 5-Minute Field Guide

Think in lanes first, products second.

Corporate & Private Sector

• 401(k) (with/without safe harbor)
• Profit sharing paired with 401(k)
• SIMPLE IRA
• SEP IRA
• Cash balance (defined benefit)

Public Service & Education

• 403(b) for schools, hospitals, certain nonprofits
• 457(b) for governments and select nonprofits

Your purpose decides your plan. Maximum owner savings needs a different chassis than broad employee adoption with simple admin.

401(k): The Modern Workhorse

Why Employees Like It

• Pretax lowers today’s bill; Roth grows tax-free for later (many plans let you split).
• After-tax + in-plan Roth conversion (if available) enables “mega backdoor Roth.”
• Age-55 rule: separate in or after the year you turn 55 and avoid early-withdrawal penalty on plan withdrawals.
• No pre-death RMDs for designated Roth accounts in plans, more flexibility later.

Why Owners Like It

• Safe harbor keeps testing simple and supports highly compensated participation.
• Profit sharing raises total funding room; can target by role/tenure within rules.
• Roth employer contributions/matches increasingly available, build tax diversification.
• Lineup control: keep costs low; offer managed models for guidance.

Pro move: Turn on auto-enrollment and auto-increase, paired with a short education sequence at new hire, day-30, and annually. Defaults drive participation.

SIMPLE IRA: A Good Starter Many Outgrow

Why It Works at First

• Light admin, easy to start, straightforward employer funding.

Where It Falls Short

• Lower limits and less design flexibility; growth makes it feel tight.

Pro move: Use SIMPLE as a bridge for very small teams, then graduate to safe harbor 401(k) as payroll scales.

SEP IRA: Ultra-Simple for Owners, Tricky for Larger Teams

• Employer-only contributions, immediate vesting, no loans, great for owner-only or tiny teams.
• Same percentage to all eligible staff; growth turns that into a heavy lift.

Cash Balance (Defined Benefit): The Deduction Accelerator

Who It Fits

• Owners who want to supercharge deductible savings and can commit multi-year funding; often paired with 401(k) + profit sharing.

Keys to Success

• Actuarial oversight, design for permanence, and match ranges to real cash flow.

403(b): The Public-Service Twin with Extras

Employee Highlights

• Same elective deferrals as 401(k); Roth often available.
• 15-year service catch-up may allow extra contributions at certain employers.
• Age-55 separation rule applies for penalty-free access.

Sponsor Watch-Outs

Many 403(b)s are ERISA plans with full fiduciary responsibility; a narrow safe harbor exists for certain deferral-only setups, while governmental/church plans sit outside ERISA. Know your lane.

457(b): Two Very Different Flavors

Governmental 457(b)

• Separate deferral limit from your 401(k)/403(b), you may save in both.
• No 10% early-distribution penalty.
• Final-3-years catch-up can allow up to double annual deferral (subject to prior unused amounts).

Non-Governmental 457(b)

• Unfunded, limited to a select management group; assets remain employer property and subject to creditors.
• Rollovers and distribution choices restricted, read the document and weigh employer credit risk.

2025 Rule Shifts That Actually Matter

• Auto-enrollment for most new 401(k)/403(b)s, set a default that captures the match and let it climb.
• Long-term part-time coverage: two years at ≥500 hours triggers eligibility in many plans (incl. ERISA 403(b)).
• Roth catch-up for high earners: begins 2026 for many; treat as a tax-diversification lever.
• No pre-death RMDs for designated Roth in plans, more retirement freedom.
• Small-employer tax credits: rich credits for startup costs, employer contributions, and even auto-enrollment, run the math.

Mistakes I See Every Week (and How to Fix Them)

• Missing the separate 457(b) limit: if you have 401(k)/403(b) and governmental 457(b), you may use both, coordinate.
• Ignoring the 403(b) 15-year catch-up: long-tenured staff at qualifying orgs can add beyond age-based catch-up, check eligibility.
• Thinking Roth is income-limited at work: IRA limits ≠ plan Roth; if plan offers Roth, you can usually use it.
• Menu sprawl: too many overlapping funds = paralysis. Keep a clean core and offer managed models.
• Running yesterday’s plan: SIMPLE feels fine…until it doesn’t. Time the upgrade to 401(k) before pain shows up.

Client Story: The SIMPLE That Couldn’t Keep Up

The problem: A growing firm with a once-sensible SIMPLE IRA; headcount doubled, owner wanted to save more without leaving employees behind.

What we changed:

• Moved to a safe harbor 401(k) + profit sharing to raise total savings and allocate with precision.
• Turned on Roth 401(k) for real tax diversification across the team.
• Upgraded the investment lineup to institutional share classes with managed models.

The outcome: higher potential savings for owner and team, more flexible tax planning, and a benefit that helps recruit/retain talent, the plan finally matched the business’s ambition.

Quick Chooser: 3 Steps to the Right Design

1. Pick your purpose: owner-focused savings, broad benefit, or both.
2. Map your people: eligibility, auto-enrollment, vesting, testing (safe harbor removes common headaches). Public employers: pair 403(b) + governmental 457(b) for more capacity.
3. Add the flex: offer Roth, keep the core menu clean, add managed models, drip education so people actually use the plan.

Key Takeaways

• Purpose → Plan: choose chassis by goal, not habit.
• 401(k) + PS scales well; cash balance accelerates deductions for owners.
• 403(b) + gov 457(b) can stack limits; non-gov 457(b) requires credit-risk eyes-wide-open.
• Defaults win: auto-enroll, auto-increase, clean lineup, managed models.

FAQs

Can I contribute to both a 403(b)/401(k) and a governmental 457(b)?

Often yes, these have separate elective deferral limits. Coordinate to use both without tripping payroll errors.

Is Roth at work income-limited like a Roth IRA?

No. Roth IRA income limits don’t apply to most plan Roth options. If your plan offers Roth, you can usually use it.

When should a SIMPLE IRA upgrade to a 401(k)?

When payroll/headcount outgrow SIMPLE’s lower limits and rigid design. A safe harbor 401(k) with profit sharing boosts room and flexibility.

Who should consider a cash balance plan?

Owners seeking large, consistent deductions and able to commit multi-year funding, ideally coordinated with a 401(k) + profit sharing.

What’s the biggest 403(b) “gotcha” for sponsors?

Misunderstanding ERISA status and fiduciary duties. Know whether your plan is ERISA, an ERISA safe harbor deferral-only setup, or outside ERISA (governmental/church).