Choosing the Right Retirement Plan for Your Business

June 20, 2025

As a business owner, selecting the right retirement plan isn’t just about offering employee benefits—it’s about aligning those benefits with your company’s financial goals and long-term vision. Whether you want to attract top talent, retain key employees, or enhance your own financial planning, the right retirement plan can serve as a strategic advantage. This guide walks through the key options available, outlines important fiduciary responsibilities, and highlights planning strategies that promote success for both the business and its people.

Define Your Goals

Before you dive in and start comparing retirement plans, the first step is to define your company’s goals for offering a plan. Are you looking to incentivize employee retention? Compete for top-tier talent? Optimize your tax position? Or are you focused on enhancing your own retirement savings strategy as an owner? Each of these objectives points toward a different plan design. By clarifying your priorities from the outset, you can filter out options that don’t align—and focus your time and resources on the ones that do.

Factors to Consider When Comparing Retirement Plans

Once your goals are defined, it’s time to evaluate retirement plan structures against your company’s unique circumstances. Consider these critical factors:

• Plan Eligibility — Review who can participate, when eligibility begins, and how eligibility impacts participation rates.
• Employer Responsibilities & TPA Requirements — Understand the operational burden, including reporting, testing, and required disclosures. Third-party administrators (TPAs) can assist with compliance, but you’ll still carry fiduciary oversight.
• Funding Responsibility — Some plans are funded solely by employee contributions, others by employers, and many through a combination. Assess what your company can sustainably support.
• Maximum Annual Contribution Limits — Compare the IRS-imposed contribution caps across plans, as higher limits may benefit owners and executives.
• Minimum Employee Coverage Requirements — Evaluate legal requirements ensuring nondiscriminatory access, which can affect plan eligibility and cost.
• Withdrawal & Payment Restrictions — Know when employees can access funds and any penalties for early withdrawal.
• Loan Restrictions — If your workforce values access to emergency funds, check whether the plan allows loans.
• Vesting Period — Determine how long employees must remain to claim employer contributions, balancing retention goals with benefit fairness.
• Annual Cost — Calculate administrative and investment fees to evaluate overall plan cost-effectiveness.

Carefully weighing these factors can help you strike a balance between financial viability and workforce value.

Understanding the Types of Retirement Plans

1. Defined Contribution Plans

Defined contribution plans are employer-sponsored savings vehicles that allow participants to contribute a portion of their salary toward retirement. The final benefit depends on the contributions made and investment performance. These plans offer flexibility and tax advantages:

• 401(k) Plans — Widely used, allowing employees to defer income and employers to match a portion of contributions. Roth options are also available.
• 401(a) Plans — Employer-controlled and often used in the public sector, with customizable rules on contributions and eligibility.
• 403(b) Plans — Designed for nonprofit and educational institutions, with similar tax benefits to 401(k)s.
• 457 Plans — Offer tax-deferred savings for government and some nonprofit employees, with no early withdrawal penalty under certain conditions.

These plans support employee financial wellness while giving business owners meaningful tax deferral opportunities.

2. Nonqualified Deferred Compensation Plans (NQDCs)

NQDCs cater to executives and high earners, allowing deferral of compensation beyond qualified plan limits. These plans are:

• Highly customizable — Tailored to individual agreements with flexible vesting and payment schedules.
• Attractive for retention — Especially for senior leadership seeking long-term financial planning.
• Unrestricted by nondiscrimination rules — Making them ideal for selective benefit offerings without impacting lower-earning staff.

Because they are not funded in the same manner as qualified plans, they carry more risk but offer exceptional planning advantages.

3. Employee Stock Ownership Plans (ESOPs)

ESOPs are unique in that they give employees an ownership stake in the business, often through a trust that holds shares on their behalf. Benefits include:

• Improved employee engagement and retention — Aligning company performance with personal benefit.
• Powerful succession tool — For business owners looking to transition ownership while retaining cultural continuity.
• Tax efficiency — Offering deferrals and deductions for both sellers and the company.

These plans are ideal for companies with strong profitability and a desire to align workforce and shareholder interests.

4. Defined Benefit Pension Plans

Defined benefit plans promise a specific monthly benefit at retirement, based on a formula involving tenure and compensation. They:

• Offer guaranteed income — Making them attractive for long-term, risk-averse employees.
• Require higher employer funding — With greater administrative and actuarial complexity.
• Can be a legacy benefit — Useful for business owners seeking predictable retirement income and possible tax advantages.

While less common today, defined benefit plans still have strategic use for certain employers.

Fiduciary Responsibilities and Plan Governance

Administering a retirement plan also brings significant fiduciary obligations under ERISA. Business owners must act in the best interest of participants and ensure plan compliance. Key practices include:

• ERISA 3(38) Fiduciary Services — Delegating discretionary investment management to a 3(38) advisor can reduce liability and ensure investment prudence.
• Unbiased Advice — Partnering with advisors who work in a fee-only or fiduciary capacity supports better decision-making.
• Fiduciary Education — Ongoing training for plan sponsors improves governance and reduces legal exposure.
• Investment Policy Statement (IPS) — Serves as a documented framework for investment decisions and a tool for evaluating advisor performance.
• Quarterly Plan Reviews — Reviewing investment performance, fees, and plan participation rates ensures your plan evolves with your workforce and business goals.

These strategies safeguard plan integrity and reinforce your commitment to your employees’ futures.

Designing a Retirement Plan that Works for Everyone

Effective retirement planning requires both strategic design and tactical execution. From initial analysis to long-term monitoring, a few key steps stand out:

• Plan Design and Analysis — Aligning plan structure with business cash flow, growth strategy, and workforce demographics.
• Vendor Search and Selection — Choosing recordkeepers and administrators that support your service, technology, and fee priorities.
• Cost and Service Benchmarking — Comparing providers helps control costs and improve service quality.
• Implementation Coordination — Ensuring smooth onboarding, communication, and operational rollout.
• Customized Employee Education — Empowering participants with financial literacy and retirement readiness tools.
• Regulatory Monitoring — Staying ahead of IRS and Department of Labor changes to remain compliant.
• Plan Terminations and Corrections — Knowing how to responsibly close or fix a plan protects your business from penalties.

With the right team and approach, your plan can support both talent retention and owner wealth.

Final Thoughts

Choosing a retirement plan is more than a compliance decision—it’s a strategic step that affects your financial future and your company’s culture. When thoughtfully designed, your plan can help recruit and retain employees, provide significant tax benefits, and contribute to long-term financial growth.

Work with advisors who understand the intersection of business operations and personal financial planning. Together, you can build a retirement strategy that evolves with your business and supports the people who help it grow.

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Disclaimer: Disclaimer: Retirement products and services are Not FDIC Insured, Not guaranteed by the Bank, May Lose Value

This content is for informational purposes only and does not constitute legal or tax advice. Please consult your legal or tax advisor for specific guidance tailored to your situation. First Western Trust Bank cannot provide tax advice. Please consult your tax advisor for guidance on how the information contained within may apply to your specific situation.