When a tax-exempt organization decides to establish a retirement Plan, the starting point is usually whether to adopt a 401(k) Plan or a 403(b) Plan.
While that’s an important decision, it may not be the best place to start.
Most discussions begin by comparing the features of 401(k) and 403(b) Plans. While those comparisons are helpful, they don’t necessarily lead to the best decision.
Instead, start by asking a different question:
What are we trying to accomplish?
No two organizations are exactly alike. Their mission, size, location, workforce, financial resources, administrative resources, and long-term objectives all influence which retirement Plan is the better fit.
Once those objectives are clear, the choice between a 401(k) Plan and a 403(b) Plan often becomes much easier.
The retirement Plan should support the organization—not the other way around.
That means stepping back before comparing Plan provisions and asking questions such as:
- Why are we establishing a retirement Plan?
- What do we want this Plan to accomplish for our employees?
- How important is administrative simplicity?
- Will this Plan support our organization as it grows and changes?
- Will this decision still make sense five or ten years from now?
Only after answering those questions does it make sense to compare providers, investment options, Plan provisions, and fees.
There is no universally “best” retirement Plan. There is only the retirement Plan that is the best fit for your organization.
A thoughtful decision-making process won’t guarantee a perfect outcome. It will, however, significantly increase the likelihood of selecting a retirement Plan that supports the organization’s mission while helping its employees prepare for retirement.
Photo by Towfiqu barbhuiya on Unsplash
