Savings at Work — Employer-sponsored Savings Plans

Employer-Sponsored Savings Plans

There are several different employer-sponsored savings plans, each with different requirements and advantages.

Ask your employer about the retirement savings plan(s) offered.

Pension plan

A pension plan is funded by your employer and promises a specific monthly benefit at retirement. It could be an exact dollar amount, such as $100 per month upon retirement. But generally your employer will calculate the benefit using a formula of factors such as your salary, age, and number of years at the company.

Employee Stock Ownership Plan (ESOP)

An ESOP is an employer-sponsored plan invested primarily in the company’s stock. Benefits are tax-deferred, so you won’t pay taxes on the benefits until you receive them, which usually occurs when you leave the company. ESOPs provide a sense of ownership and shared in the growth of the company.

403(b) tax deferred annuity plan

If you work for a school system, nonprofit hospital, religious organization or other tax-exempt employer (known as 501(c)(3) organizations), then you likely have the option of a 403(b). Similar to the 401(k), employees contribute part of their salary on a pre-tax basis to the plan and the employer may match part, all, or none of that amount.

Section 457 plan

If you work for the local, state or federal government, a government agency, or certain non-profit organizations like public schools and county hospitals, they you likely have the option of a Section 457 plan. A 457 deferred compensation plan is similar to other retirement plans, like a 401(k) and 403(b) plans, in that plan earnings grow on a tax-deferred basis, and contributions are made through voluntary payroll deduction.

Keogh plan

Self-employed individuals or unincorporated businesses can set up a Keogh plan as a tax deferred pension plan for retirement. Contributions are generally tax-deductible for up to 25 percent of your annual income, with certain limits. Keogh plans can invest in the same set of securities as 401(k)s and IRAs, including stocks, bonds, certificates of deposit, and annuities.

Simplified Employee Pension plan (SEP)

A SEP plan provides employers with a simplified method to make contributions toward their employees’ retirement and, if self-employed, their own retirement. Contributions are made directly to an IRA set up for each employee (a SEP-IRA). SEP contributions are discretionary and can be up to 25 percent of pay for each eligible employee. Employer contributions are 100 percent immediately vested, and grow tax-deferred until the money is withdrawn at retirement.

Savings Incentive Match Plans for Employees (SIMPLE) IRA

A SIMPLE IRA is a retirement plan for small businesses with not more than 100 employees. With a SIMPLE IRA, your company matches your contribution dollar for dollar for up to 3 percent of your salary, or makes a contribution of 2 percent of your salary. Contributions are 100 percent immediately vested.

Whatever the plan, it’s wise to participate and contribute as much as you can.

For more information about employer-sponsored savings plans, visit the U.S. Department of Labor Employee Benefits Security Administration.


Additional Reading

Which is greater: The amount of debt on your credit card or the money in your emergency fund or savings account?1

  • 24% credit card debt
  • 58% emergency fund or savings account
  • 13% no credit card or savings account

This site is for education purposes. The material provided on this site is not intended to provide legal, investment, or financial advice or to indicate the availability or suitability of any Capital One product or service to your unique circumstances. For specific advice about your unique circumstances, you may wish to consult a qualified professional.

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Source: 2015 Financial Security Index, Bankrate.com