Retirement Plans Made Simple: Exploring 401(k), 401(a), and Alternative Options

Choosing a retirement plan for your team shouldn’t feel like reading a legal manual. With options like 401(k), 401(a), and alternative retirement plans on the table, it’s easy to feel stuck trying to figure out which one fits your company’s goals or your employees’ needs.

You don’t have to figure it out alone. With the right information, and the right partner, you can build a retirement offer that works for your people and your bottom line.

Whether you’re a small business owner looking to boost retention or an HR leader exploring new benefit options, this article is here to make the complex simple. We’ll break down the differences between retirement plans 401, 401(a) retirement plans, other options like life insurance retirement plans, and help you understand the real-world benefits of each.

401(k) Plans Explained

This is one of the most well-known and widely used retirement plans 401 available to employers and employees in the U.S. It offers flexibility, tax advantages, and a familiar structure that appeals to both small businesses and growing teams.

Here’s how it works:

• Employee contributions are deducted from each paycheck, pre-tax for traditional 401(k) plans or post-tax for Roth 401(k)s. ‍
• Employers can offer a match, contributing a percentage of what the employee contributes (e.g., 100% match up to 4%).
• Funds grow tax-deferred until withdrawal at retirement age (or, for Roth options, grow tax-free).

Why Businesses Offer 401(k) Plans

• They’re highly valued by employees and boost your competitiveness as an employer.
• They allow flexibility in plan design, employer matches, vesting schedules, and eligibility criteria can all be tailored.
• Many PEOs include 401(k) setup and management as part of their bundled HR services, reducing admin burden.

Things to Consider

• Plans must meet IRS and Department of Labor guidelines.
• Admin tasks like compliance testing, fiduciary oversight, and reporting can be time-consuming, unless managed through a PEO.
• Not every small business needs a 401(k), which is why it’s important to compare other options as well.

What Is a 401(a) Retirement Plan?

While the 401(k) is the go-to retirement option for many private companies, a 401(a) retirement plan is a lesser-known but powerful alternative, most commonly used by government entities, nonprofits, and educational institutions.

Unlike a 401(k), where employees typically control how much they contribute, a 401(a) plan is employer-driven. That means the employer decides:

• Who is eligible.
• How much they contribute.
• Whether employees can contribute as well.
• When the funds vest.

Key Features of a 401(a) Retirement Plan:

• Mandatory employer contributions: Unlike a 401(k), the employer must contribute to the plan, either a fixed dollar amount or a percentage of the employee's salary. ‍
• Customizable structure: Employers have full control over eligibility rules, vesting schedules, and contribution formulas. ‍
• Used for retention: These plans are often designed with longer vesting periods, making them useful for retaining employees over time. ‍
• Typically non-portable: 401(a) plans are often not transferable between employers unless the new employer also offers a 401(a).

Who Should Consider a 401(a)?

While a 401(a) retirement plan isn’t usually the best fit for private businesses, it can be a great option for public institutions or nonprofits looking to:

• Ensure consistent contributions toward employee retirement.
• Maintain strong retention through long-term vesting.
• Offer a plan that’s fully employer-directed.

If you're unsure whether a 401(k) or 401(a) fits your business best, a PEO can help compare options and manage compliance, saving you time and reducing the risk of costly errors.

Alternative Retirement Plans to Consider

While 401(k) and 401(a) retirement plans are the most widely recognized, they’re not the only options. Depending on your business’s size, budget, and workforce needs, an alternative retirement plan could offer a better fit, often with fewer administrative requirements and more flexibility.

Here are some common alternatives to explore:

SIMPLE IRA (Savings Incentive Match Plan for Employees)

• Ideal for small businesses with fewer than 100 employees.
• Allows both employee and employer contributions.
• Easier and more affordable to administer than a 401(k).

SEP IRA (Simplified Employee Pension)

• Funded entirely by employer contributions.
• Great for self-employed individuals and small business owners.
• Flexible annual contribution amounts.
• Minimal administrative burden.

Profit-Sharing Plans

• Employer contributes a portion of profits to employee retirement accounts.
• Contributions are discretionary and based on profitability.
• Encourages employee engagement and retention through performance-based incentives.

Cash Balance Plans

• A type of defined benefit plan with predictable contributions.
• Suitable for established businesses or those with high-earning owners/executives.
• Can be paired with a 401(k) for increased retirement savings.

Each alternative retirement plan comes with its own pros, cons, and compliance considerations. So, it’s important to evaluate your goals, employee demographics, and financial strategy when deciding.

If you're not sure which path makes the most sense, partnering with a PEO (especially with guidance from Inclusive PEO Brokers) can simplify plan comparison, setup, and ongoing management.

What Is a Life Insurance Retirement Plan (LIRP)?

A life insurance retirement plan (LIRP) is an alternative way to build retirement savings through a permanent life insurance policy, such as whole life or indexed universal life (IUL). While it’s not a traditional retirement account like a 401(k), a LIRP can offer unique financial advantages for certain employees or business owners.

How a Life Insurance Retirement Plan Works:

• The policyholder pays more than the required premium (called "overfunding").
• The excess funds accumulate tax-deferred cash value inside the policy.
• At retirement, the policyholder can borrow against that cash value tax-free to supplement income.
• Upon death, the remaining policy value is paid out as a tax-free death benefit.

Potential Benefits of a LIRP:

• Tax-advantaged growth and withdrawals.
• No IRS contribution limits like a 401(k).
• Access to funds before retirement age (via loans).
• Life insurance protection for families or business continuity.

Things to Consider:

• LIRPs can be more expensive than traditional retirement plans.
• They require long-term commitment and proper structuring.
• Not every employee will benefit, these plans are often best suited for high-income earners, executives, or business owners.

While a life insurance retirement plan isn’t meant to replace a 401(k) or IRA, it can be a valuable piece of a more personalized or layered retirement strategy.

How PEOs Help Simplify Retirement Planning

Retirement plans can be a powerful retention tool, but for many business owners, the logistics of setting them up and maintaining compliance can feel overwhelming. That’s where PEOs (Professional Employer Organizations) can make a big impact.

When you work with a PEO, you’re not just outsourcing payroll or HR, you’re gaining access to comprehensive benefits support, including retirement planning solutions that are easier to manage, more cost-effective, and competitive enough to attract top talent.

Here’s how a PEO can help with your company’s retirement benefits:

• Plan Setup and Administration
  A PEO can help you choose the right type of plan, whether it's a 401(k), 401(a), or an alternative retirement plan, and handle all the backend setup and administration. ‍
• Fiduciary and Compliance Support
  Retirement plans come with strict compliance requirements. PEOs provide expert guidance to help you meet IRS and Department of Labor rules, reducing your liability. ‍
• Bundled Access to Top Retirement Providers
  Because PEOs represent many small businesses, they can negotiate better rates and offer access to plans that may otherwise be out of reach, like high-quality 401(k) providers or life insurance retirement plans. ‍
• Employee Education and Onboarding
  PEOs often include tools and education resources to help your team understand their options and take full advantage of the benefits you offer.

How Inclusive PEO Brokers Helps You

Choosing the right plan, setting it up, and staying compliant can quickly become overwhelming. That’s where Inclusive PEO Brokers comes in.

Our job is to help you find a PEO that fits your specific goals, including the ability to offer competitive, compliant, and easy-to-manage retirement plans for your team.  

Here’s how we help:

• We assess your business needs: from team size and industry to long-term retention goals. ‍
• We compare vetted PEO partners side by side: including those that offer robust support for 401(k), 401(a), and alternative retirement plans. ‍
• We look beyond the basics: focusing on PEOs that offer education, compliance guidance, and even specialized options like life insurance retirement plans. ‍
• We stay involved beyond the match: making sure the solution you choose continues to serve your business as it grows.

We help you navigate the complexity of retirement planning by matching you with a PEO that’s built to support your employees, reduce your administrative burden, and strengthen your overall benefits offering.

Schedule your PEO Fit Call with Inclusive PEO Brokers today, and let’s find the right partner to help you offer smarter, more competitive retirement plans that support your team and your business.