Benefits to the Employer

One may argue that businessowners should sponsor a qualified retirement plan because it's the right thing to do. While a desire to reward employees for their commitment and dedication to the company is satisfied by installing a retirement plan, the driving motivation behind a businessowner's decision to take on this significant financial obligation is usually far more than bottom-line oriented.

As explained in Section I, sponsorship of a qualified retirement plan qualifies the employer for certain income tax benefits, which are generally split into two categories:

• Pre-Tax or Tax-Deductible Contributions — Employer contributions made on behalf of participating employees are tax deductible by the employer as a business expense. Contributions to qualified retirement plans are not considered taxable income to participating employees.
• Tax-Deferred Accumulations — Participating employee contributions to qualified retirement plans accumulate on a tax-deferred basis. Taxation occurs only when benefits are paid out to plan participants.

Answering the question, "Why sponsor a plan?" is largely achieved by outlining those benefits.

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