Provide a flexible tax shelter for the company – employers may make tax-deductible contributions to the plan.

Employer-funded contributions save payroll taxes, when accounted for as part of an employee’s total benefits package.

Provide an employee benefit that most companies need in order to attract and retain qualified employees.

Help provide for the well-being of the employees at retirement, rewarding them for years of faithful service.

Defined Benefit plans can provide business owners with retirement benefits many times larger than 401(k)/profit sharing plans. However, they are appropriate only in cases when the company is prepared to obligate to funding requirements for multiple years, and usually when owners are older. They are often used in combination with 401(k)/Profit Sharing Plans to further maximize the benefits to owners in relation to employees.

Employees can automatically save for retirement by electing to have 401(k) contributions deducted from each paycheck. For most people, payroll deduction makes it easier to save – they don’t have easy access to the money and don’t have to take any action to invest it.

401(k) contributions reduce employees’ taxable W-2 income.

Lower taxes means that employees can afford to save more for retirement than without a 401(k) plan.

When taxes are deferred until retirement age, employees may benefit from a lower tax bracket.

With the “Roth” 401(k) option, employees pay taxes on their contributions now, in exchange for receiving investment gains tax-free when they withdraw their money (subject to restrictions). This may benefit employees who expect substantial investment gains, and/or to not be in a lower tax bracket upon retirement.

Investment gains accumulate tax-free over time, which may yield substantial increases in savings, and soften the effects of inflation.

401(k) contributions may provide the benefit of “dollar-cost averaging,” which helps to even out the ups and downs of the market. The same dollar amount invested at regular periods will buy more shares when the market is low, and fewer when it’s high – reducing the anxiety and risk of trying to “time the markets.”

Defined Benefit plans (including "Cash Balance" and "DB(k)") provide fixed retirement benefits, not dependent on market gains and losses, or voluntary contributions by employees.