The answer to that question is as varied as the employers who are establishing these plans.  Generally, they focus on one key fact:  qualified plans have unique tax benefits not available in any other business or financial structure.  The tax planning opportunities include the following:

1. Employer contributions - and certain employee contributions are deductible when deposited into the plan's trust, but are not currently taxable to the employees.  

2. The investment earnings of the assets in the qualified plan grown on a tax deferred basis.

3. Participants are not tax on the accumulations in the plan, even if vested, until they receive the benefits as payments/

4. When benefits are paid, most participants may further delay the taxation on those benefits by rolling over the payments to an IRA or another employer plan.

5. For some participants receiving large distributions, special tax benefits lower the taxes that are due at the time of the payment.

The net effect of these is that employers can more easily afford to make contributions (income tax deductions for the contributions lower the cost to fund the plan); the benefits can grow faster (no taxes are due on the investment growth until the benefits are paid); and employees receive valuable retirement benefits that, generally, become even more valuable the longer the employee stays with the company.  No other savings vehicle has this combination of tax planning opportunities.

02/11/2011