A retirement plan generally works like this: The employee chooses a percentage of his salary (of which there may be a cap) to be deducted and deposited into a retirement plan. The deductions are taken from gross income (taxable income) and the funds multiply in the retirement account. Employers may match contributions, if they so choose. There are caps and limits to how much an employer can match. If the company does not match any part of the employee's contributions, the plan is still a benefit to employees. Retirement plans are highly desirable and something that many people look for in a benefits package.

The three most commonly defined contribution pension plans are the 401(k), 403(b), and 457(b) of the Internal Revenue Code (IRC). The 401(k) plan is a deferred contribution (DC) plan. These plans are also known as cash or deferred arrangements (CODA). The 403(b) plan is also known as tax-sheltered annuity (TSA) and 457(b) plans are referred to as deferred compensation plans (DCP).

Setting up a retirement plan can be a complex project. Contact the Profit Sharing Council of America at www.psca.org to find a vendor to set up a plan for your company.