Introduction to CODA 401(k) Plans

Cash or Deferred Arrangements (CODAs), better known by the section of the tax code that allows them — 401(k) — are arguably the most popular form of retirement plan in America today. These arrangements give employees a choice: receive all of their compensation today (“cash”) or defer a significant portion of that compensation into a tax-deferred retirement plan (the “deferred” option).

In traditional 401(k) plans, employees do not pay taxes on compensation they choose to defer. Those contributions to the plan are invested and grow tax-deferred. Both of these are significant tax advantages to the employee. In addition, many employers also contribute to the employee’s retirement account by matching the employee’s contribution or making additional profit-sharing contributions. These employer contributions also grow tax-deferred within the account.

Employers benefit from establishing a Cash or Deferred Arrangement as well: all employer contributions (within limits) are tax-deductible as a normal business expense. Employers also enjoy non-tax benefits such as a more stable workforce, lower turnover, and greater productivity. Cash or deferred arrangements allow employers to provide a tax-advantaged retirement vehicle to their employees without committing to mandatory annual cash contributions. As a type of “profit-sharing plan,” 401(k)s offer employers a more flexible alternative to traditional defined benefit and defined contribution plans.

For all of these reasons, 401(k) plans have grown in popularity with both employees and employers. Approximately 85% of companies with 1,000 or more employees currently maintain 401(k) plans. Congress has recognized this growing popularity — and the need for American workers to supplement their retirement savings and Social Security — and has expanded 401(k) plans to include more and more participants.

Key milestones in the expansion of 401(k) plans include:

• 1997: Non-profit organizations were allowed to establish 401(k)s for their employees
• 1998: SIMPLE 401(k) plans were introduced for smaller employers
• 2002: Family-owned and operated businesses were first allowed to establish Solo 401(k) plans
• 2006: Roth 401(k)s introduced after-tax contributions with the promise of tax-free retirement benefits
• 2025: SECURE Act 2.0 expanded catch-up contributions and introduced the age 60–63 “super catch-up”

Clearly, 401(k) plans will continue to grow as an important part of America’s overall retirement program.

This course provides an overview of the rules governing 401(k) plans and opens this growing market to you. The focus is on retirement plans that can be established by most small-to-medium sized employers. These employers know the needs of their employees, but often have little knowledge about retirement plans. The tax breaks alone have caused hundreds of thousands of companies to set up a 401(k) plan — but these plans offer other benefits as well.

Next to high wages, qualified retirement plans are among the best means to attract high-caliber employees and retain skilled workers. Qualified retirement plans such as 401(k)s cut costs, increase profits and productivity, and reduce turnover.

This program begins with an overview of 401(k) plans and continues with detailed discussion of the more complex aspects of these plans. Feel free to follow the links on each page to navigate the material. If you have any questions, instructors are available via email by clicking the Contact link at the top of each page.