Other retirement plans — Expanding savings options

The 401(k) plan is often considered the poster child for employer-sponsored retirement plans. In addition, 403(b) plans, along with 457 plans, also get their share of press. But, there are a number of other retirement plans that may be offered by employers to attract and retain employees. Here’s an overview of the most common types.

401(a) Plans

A 401(a) plan is an employer-sponsored retirement plan funded primarily by employer contributions. The employer decides employee eligibility to participate and determines the formula for employer contributions. It can be either a supplemental or core retirement plan for employees who meet eligibility rules. A 401(a) plan may provide for either mandatory employee contributions or voluntary employee after-tax contributions. However, an employee who participates in a 401(a) plan cannot also participate in a 401(k) plan.

Non-Qualified Plans

Non-qualified plans allow select employees to defer a portion of their paycheck into a retirement savings account. These plans are designed to meet the specialized retirement savings needs of highly compensated executives who often can’t save enough in a qualified 401(k) plan because of IRS salary restrictions.

Pension Plans

Pension plans come in two basic forms:

• Defined Benefit — The retirement benefit of this traditional plan is determined based on a formula that takes into account criteria such as average salary, years of service, and participant's age when the benefit starts. The employer funds the plan based on what the future income benefit will be. The plan retains the risk that if the underlying investment does not perform well, the plan will have to contribute additional funding.
• Defined Contribution — The employer promises to deposit a certain dollar amount or percentage of pay into the plan. The retirement benefit is determined based on the balance in the account at retirement. The employee’s retirement benefit is unknown until retirement since the underlying investment performance is a leading factor in the benefit amount.

Profit-Sharing Plans

In this type of plan, the employer makes voluntary contributions based on the profitability of the company. Contributions are not mandatory. Some companies offer a combination of a cash balance plan for consistent contributions and a profit sharing plan that allows them to contribute more when business is good.

Reaching your savings goals

The retirement savings arena is filled with different options. Regardless of what type of company you work for and how much money you make, chances are you have access to an employer-sponsored retirement plan that can help you reach your retirement savings goals.