Final answer:
An employer may implement a Section 403(b) plan to provide employees with the benefit of tax-deferred retirement savings. Such plans allow for pretax contributions that grow tax-deferred until withdrawal and can be transferred between employers, aiding in the growth and portability of retirement funds.
Step-by-step explanation:
A qualified employer may consider implementing a traditional tax-sheltered annuity (TSA)/Section 403(b) plan to provide employees with tax-deferred retirement savings. These types of plans are categorized as defined contribution plans, where both employers and employees can make regular contributions. One of the main benefits is that the contributions are tax-deferred, meaning that employees will not pay taxes on the funds until they are withdrawn, usually after retirement. This feature is advantageous because it allows the invested funds to grow without the immediate burden of taxation, potentially leading to greater accumulation over time.
Defined contribution plans like 403(b)s and 401(k)s have largely replaced traditional pension plans, and they offer various benefits. They are portable, allowing employees to take the retirement account with them if they change employers. Moreover, as investments made within these plans can potentially generate real rates of return, this can help retirees to manage the potential impact of inflation on their savings.