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What is a retirement plan?
A qualified retirement plan is a tax-deferred retirement savings program offered by a company for the benefit of its employees.¹ Your business may offer one of two core types of qualified retirement programs: defined benefit or defined contribution.

A defined benefit plan is often referred to as a pension. This kind of plan is trustee-directed because you as the employer decide where to invest the money in the plan to pay out the promised benefits to employees in the future. With defined benefit plans you make all the contributions, and promise to pay certain amounts to employees upon their retirement, usually based on their income and years of service.

A defined contribution plan could be a wide range of plans. Some plans allow employees to invest their own money; others include contributions from the employer or a combination of the two. Usually participant-directed, these plans allow employees to choose where to invest their assets from a set of options chosen by the employer or the employer's designated trustees. The most common types of these plans are 401(k) plans, profit-sharing and SIMPLE IRAs (Individual Retirement Accounts that can be used to make pre-tax contributions for business owners and their employees).²

In these types of plans, employees receive as a benefit what they have invested and the earnings on that investment. They may also have access to money the employer has contributed, through a company match or other company contribution to the plan, which is subject to vesting. Typically, employees must meet certain criteria, such as length of time employed, before they are fully vested. Usually, employees are not entitled to the employer contribution money in the account until they are at least partially vested.

These plans are tax advantaged, which means that employees don't pay taxes on the earnings until they withdraw the money. This benefit allows employers to take the money out of an employee's check pre-tax, creating a tax benefit during the earning years.

¹ Qualified plans also must meet rules detailed by the IRS and Internal Revenue Code
²There is another type of SIMPLE retirement plan, called a SIMPLE 401(k).

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