The Difference Between a 401(k) and a 401(a) (And Why It Matters)

I’m sure you’ve heard of a 401(k) as the type of retirement plan most commonly utilized by businesses and employers but what do you know about a 401(a)? Read on to learn more about the difference between a 401(k) and a 401(a) and what plan may be most meaningful to you and your business:

Let’s start with what the 401(k) and the 401(a) have in common. Both are workplace retirement plans under Section 401 of the Internal Revenue Code. To be honest, that’s about it. They may stem from the same 401 section of the tax code, but there are some pretty significant differences between the two.

The primary difference between the 401(k) and the 401(a) is the type of employer that is offering them. 401(k) plans are typically offered by private-sector employers. The 401(k) gives employees the option to invest pre-tax dollars out of their paycheck into their retirement. Employees have the option of determining the percentage and some companies further incentivize employees with a matching program. 401(a) plans are normally associated with the following: government agencies, non-profits, and educational institutions. 401(k) plans are open equally to all employees of a particular company. 401(a) plans offer greater opportunity for customization and are only offered to designated employees as an incentive for that employee to stay with an organization. The employer sets the employee contribution amount and the employer is mandated to contribute to the plan.

There are many other noteworthy distinctions between a 401(a) and a 401(k). 401(a) plan contribution amounts are set by the employer, while the 401(k) allows the employee to decide what they prefer to contribute. 401(k) plans present employees with a range of investment products while 401(a) plans turn over control of investment options to the employer. 401(a) plans make participation mandatory whereas 401(k) plans do not.

For a government contractor, there are considerations that go beyond just choosing a retirement plan for your employees. A government contractor is a competitor. Your private business must go toe-to-toe with other contractors. To be in fighting shape, you want your best team with you. You want to look after your valued team members and you want to be driving your costs down so that each bid you place is cost effective and competitive. A 401(a) may be the solution for you.

Why a 401(a)? As we have covered already, 401(a) plans  are the qualified retirement plan of choice for government agencies. It’s the standard for the industry you’re in, as a business that works so closely with these government entities. 401(a) plans are not covered by Title I of ERISA, so that means your state makes the rules. 401(a) plans offer the employer a great deal of control. These sorts of plans lend themselves to being more customizable and one of the greatest boons they offer is that the employer gets to designate which of their employees reap the benefits. Additionally, 401(a) contribution amounts are set by the employer, which provides additional control to the employer over the plan.  Control over the amounts of contributions and mandatory participation make 401(a) plans ideal for government contractors who have a fixed and required spend to provide their employees with benefits.

The Boon Group specializes in flexible, highly customizable retirement plans for small businesses. Our goal is to create a plan that does the most work for you and the employees you want to take care of. We are here to provide the plan design analysis that helps you identify the best way to allocate the money to the people you want and/or maximize your account. Boon can offer government contractors a more targeted plan design that is developed based on the demographics of your company. Our experts understand how to efficiently use the rules of the IRS to maximize your tax deduction and help you create a comfortable retirement for the employees you designate.

Want to learn more? Contact elittle@booninvestmentgroup.com and check us out at www.theboongroup.com.

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About The Boon Group

The Boon Group® is a full service employee benefits company specializing in the design, implementation and administration of cost-effective fringe benefit plans for federal, state and local government contractors. Since 1982, The Boon Group has developed a partnership philosophy that expands beyond the products and services we offer. We stand with the employers and employees who, just like all who work at The Boon Group, are faced with the daunting task of navigating the U.S. healthcare system. Together, we can find a better way for all Americans to access healthcare. The Boon Group, Inc. is the parent holding company of The Boon Insurance Agency, Inc., Boon Administrative Services, Inc. (formerly named CEBA), Boon Insurance Management Services, L.P., Health & Welfare Benefit Systems, Inc. and Boon Investment Group, Inc. The Boon Group was formed to support and strengthen the position of these companies as a wholesaler of exclusive products and services. www.boongroup.com
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