Business Retirement Plans — Employer Perspective (2025)

Plan Types for Employers

2025 Contribution Limits

SECURE 2.0 Key Provisions (2025)

• Student loan matching: Employer can match employee student loan payments with retirement plan contributions
• Roth 401(k) RMD eliminated: Roth 401(k) no longer subject to RMD (consistent with Roth IRA)
• Emergency savings accounts (PLESAs): Plans can offer Roth emergency savings (up to $2,500)
• Automatic enrollment: New 401(k)/403(b) plans (established after Dec 29, 2022) must auto-enroll: initial 3-10% of pay, annual 1% increase to ≥10% (≤15%). Exceptions: ≤10 employees, <3 years in business, church/government plans, SIMPLE plans
• Part-time workers: Must allow participation if 500+ hours in 2 consecutive years (reduced from 3 years). Employer match NOT required for these employees
• Super catch-up (60-63): Higher catch-up of $11,250 (standard plans) / $5,250 (SIMPLE/401(k)(11)) — for employees age 60-63
• RMD age: 73 (born 1951-1959), 75 (born after 1959)
• Emergency withdrawals: $1,000/year penalty-free for emergency expenses; domestic abuse victims up to lesser of $10,000 or 50% account balance
• 529-to-Roth rollover: Unused 529 funds can roll to beneficiary's Roth IRA (15-year account age requirement)

SEP-IRA

• Employer-funded only (no employee deferrals); employee cannot contribute
• 25% of compensation up to $70,000 (2025). No catch-up contributions
• Compensation cap: $350,000 (2025)
• Must cover all eligible employees: age 21+, worked in 3 of last 5 years, earned ≥$750 (2025; $800 for 2026)
• Can exclude: union employees (if covered), nonresident aliens with no US-source income
• Easy to set up (Form 5305-SEP); no annual filing requirement
• Contributions can be made by filing deadline (including extension)
• 100% immediately vested; RMDs required at age 73
• SECURE 2.0: Can accept Roth contributions (employer Roth contributions taxable to employee)

SIMPLE Plans

SIMPLE IRA

• For businesses with ≤100 employees who earned ≥$5,000 in prior 2 years and reasonably expect ≥$5,000 current year
• Employees can defer up to $16,500 (2025) + $3,500 catch-up (50+) + $5,250 super catch-up (60-63)
• SECURE 2.0 enhanced limits (≤25 employees, or 26-100 with higher employer contribution): 2025 deferral limit $17,600, standard catch-up $3,850
• Employer must contribute: 3% match (can reduce to 1% in 2 of 5 years) OR 2% non-elective to all eligible employees
• Compensation cap for match/non-elective: $350,000 (2025)
• 100% immediate vesting
• 2-year rule: Withdrawals within first 2 years of participation → 25% penalty (instead of 10%)
• After 2 years: can roll over to other IRAs; 10% early withdrawal penalty applies
• Must run full calendar year; cannot terminate mid-year (unless replacing with safe harbor 401(k))
• To terminate for following year: notify employees by November 2
• No annual IRS filing required
• Employer can establish Jan 1 – Oct 1 (new businesses after Oct 1: as soon as administratively feasible)

SIMPLE 401(k)

• Combines SIMPLE IRA and traditional 401(k) features
• No annual non-discrimination testing required
• Employer: 3% match OR 2% non-elective (cannot reduce match to 1% — unlike SIMPLE IRA)
• Same contribution limits as SIMPLE IRA
• Allows participant loans (unlike SIMPLE IRA)
• Must file Form 5500 annually
• 100% immediate vesting for all contributions
• SECURE 2.0: Can convert from SIMPLE IRA to SIMPLE 401(k) mid-year (starting 2024)

Qualified Retirement Plans

Defined Contribution Plans (e.g., 401(k))

• Individual accounts; retirement benefit depends on contributions + investment performance
• Employee deferral: $23,500 (2025) + $7,500 catch-up (50+) + $11,250 (60-63)
• Combined employer + employee limit: $70,000 (excluding catch-up)
• Employer deduction limit: 25% of total participant compensation
• Most common: traditional 401(k) (pre-tax) or Roth 401(k) (after-tax)
• Pre-tax deferrals: not in W-2 taxable wages, but subject to FICA
• Must file Form 5500 (Form 5500-EZ for one-participant plans with assets >$250,000)

Defined Benefit Plans (Pension Plans)

• Promises specific retirement benefit (based on formula: age, years, salary)
• 2025 annual benefit limit: lesser of $280,000 or average of 3 highest compensation years
• Employer contributions: actuarially determined, not limited to 100% of comp
• PBGC (Pension Benefit Guarantee Corp) may partially insure benefits
• Higher contribution limits than DC plans, but higher admin costs (annual actuarial requirements)
• Must file Form 5500 annually; trust needs EIN
• Self-employed: cannot contribute if no taxable business income that year

ERISA Coverage

All qualified plans subject to ERISA (Employee Retirement Income Security Act):

• Sets minimum standards for private industry retirement plans
• Fiduciary responsibilities, reporting/disclosure requirements
• Minimum funding requirements (DB plans need actuary certification)
• Vesting and participation requirements
• Form 5500 annual filing required

Distribution Rules

• Generally restricted to: retirement, death, disability, termination, plan termination, age 59½, or hardship
• 10% early withdrawal penalty exceptions: medical expenses >7.5% AGI, disability, death, annuity payments, IRS levy, qualified reservist, qualified birth/adoption, qualified disaster recovery, separation from service after 55, terminal illness, domestic abuse victims, emergency expenses ($1,000/year)
• RMD: Must begin by April 1 of year after later of: (1) reaching age 73 (SECURE 2.0), or (2) retiring from employer maintaining plan. 5% owners: must begin at 73 regardless of retirement status
• Rolling over to another qualified plan/IRA defers taxation

Plan Loans

• Maximum loan: lesser of $50,000 or 50% of vested balance
• Must be repaid within 5 years (except principal residence loans)
• Default → deemed distribution (taxable + 10% penalty if under 59½)

Employee Eligibility Requirements

Part-time employees (SECURE 2.0): Must allow participation if 500+ hours in 2 consecutive years. Eligible for deferrals only (employer match not required).

Discrimination Testing

ADP Test (Actual Deferral Percentage):

• Average deferral of HCEs cannot exceed NHC average by > 2% points OR > 2× (whichever is less)
• Safe harbor 401(k): avoid testing by providing 3% non-elective or 4% match (100% of first 3% + 50% of next 2%)

Top-heavy test: If >60% of plan assets belong to key employees, minimum contributions/benefits must be provided to non-key employees (3% of compensation or highest contribution rate for key employees).

Prohibited Transactions (§4975)

Disqualified persons: Fiduciaries, employer, owner (≥50%), officer/director, 10%+ shareholders, family members (spouse, children, lineal ancestors), 50%+ owned entities.

Penalties:

• Initial tax: 15% of amount involved (per tax year)
• Additional tax: 100% if not corrected within taxable period
• IRA owner/beneficiary violation: account ceases to be IRA → all assets deemed distributed (income tax + potential penalty)
• Correction period: 90 days after IRS deficiency notice
• Most common in qualified plans: employer failing to timely deposit employee contributions/loan repayments

Reporting

Small plans (<100 participants) file 5500-SF. One-participant plans below $250K assets exempt from filing (except final year).