EE and ER pension plan

Why EE and ER Pension Plans Are Getting a Revival in 2025?

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EE and ER Pension Plan - the Revival of a Balanced Pension Strategy

Retirement planning in 2025 is evolving quickly. Amid constant tax law changes and new SECURE Act provisions, one concept is regaining attention among employers and financial planners — the EE and ER pension plan.

This type of plan, where both the employee (EE) and employer (ER) share in funding retirement benefits, had faded during the rise of 401(k)s. But as the workforce seeks more predictable income and companies want to attract and retain talent, these shared-cost pension models are re-emerging as one of the most balanced and tax-efficient retirement strategies available.

Let’s explore why the EE and ER pension plan is trending again in 2025, how it works, and why both employees and employers are embracing it.

What is an EE and ER Pension Plan?

An EE and ER pension plan refers to a contributory retirement plan where both the employee and the employer make regular contributions to fund retirement benefits.

In simple terms:

EE (Employee) : Contributes a set percentage of salary, often through payroll deductions.

ER (Employer) : Matches or adds to that contribution, based on a formula or defined percentage.

This shared approach creates a powerful alignment — both sides are invested in long-term retirement success.

In contrast to a defined contribution plan (like a 401(k), which depends heavily on market performance), an EE and ER pension plan can provide a guaranteed or predictable benefit, more like a defined benefit plan or cash balance plan.

Explore how a Cash Balance Plan works.

Why EE and ER Pension Plans are Trending in 2025?

Several economic and legislative factors have combined to make 2025 the perfect year for a pension comeback:

1. Rising Financial Uncertainty – After years of market volatility, employees want more secure and predictable retirement benefits.

2. Talent Retention Pressures – Employers are using enhanced benefits as a way to retain top talent and reduce turnover.

3. Tax Advantages Under the SECURE Act 2.0 – Expanded startup credits and higher contribution limits make EE/ER plans more cost-effective.

4. Aging Workforce Dynamics – With more professionals aged 50+, higher contribution caps allow accelerated savings before retirement.

5. Hybrid Flexibility – Modern EE and ER pension plans blend stability with adaptability, giving companies control while rewarding long-term employees.

Simply put, both sides are benefiting: employees get security, and employers get tax deductions and loyalty.

Learn about pension deductions under SECURE Act rules

Advantages for ER (Employers) Pension Plan

1. Tax Deductions on Contributions

  • All employer contributions (ER) to the plan are tax-deductible business expenses, immediately lowering taxable income.

2. Retention and Recruitment Tool

  • Offering a structured pension demonstrates long-term commitment to employee well-being — a major differentiator in a competitive labor market.

3. Cost Sharing Reduces Burden

  • Because employees contribute (EE side), the employer doesn’t carry the full funding burden, improving sustainability.

4. Predictable Financial Planning

  • Defined contribution formulas allow companies to budget annual costs and control liability exposure.

5. Compliance Credits Under SECURE Act 2.0

  • The SECURE Act provides small business credits of up to $5,000 for establishing a new qualified plan, plus $500 for automatic enrollment.

Advantages for EE (Employees) Pension Plan

From the employee’s perspective, the EE and ER pension plan offers security, ownership, and partnership in saving for the future.

1. Shared Commitment

  • Employees feel empowered knowing their employer is also contributing toward their future, creating trust and stability.

2. Predictable Retirement Income

  • Depending on the plan design (defined benefit or hybrid), employees may enjoy guaranteed or stable retirement income streams.

3. Tax-Deferred Growth

  • EE contributions are often pre-tax, reducing current income tax liability while growing investment value over time.

4. Higher Overall Savings

  • The combination of EE and ER contributions means significantly higher total retirement savings compared to individual efforts.

5. Potential for Portability

  • Many modern EE and ER pension plans include vesting and portability options that allow employees to carry benefits between employers.

Calculate your Contributions Today!

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How the SECURE Act Supports this Revival

The SECURE Act and SECURE Act 2.0 fundamentally changed how employers and employees approach retirement. These laws expanded deadlines, tax credits, and contribution limits — all of which support the return of EE and ER pension plans.

Key provisions include:
Feature EE & ER Pension Plan 401(k) Plan Cash Balance Plan
Contribution Source
Both employee (EE) & employer (ER)
Mainly employee
Employer-funded
Benefit Type
Defined benefit or hybrid
Defined contribution
Defined benefit hybrid
Tax Treatment
Both contributions are tax-deductible or deferred
Pre-tax or Roth
Employer deduction
Ideal For
Employers seeking retention + tax benefits
Individuals seeking flexibility
High-income earners
Predictability
Moderate to high
Low (market-driven)
High (guaranteed formula)
By layering multiple plans, employers can combine flexibility and maximum retirement tax savings. For instance, pairing a cash balance plan with a 401(k) and EE/ER plan structure can dramatically increase overall contribution limits.

Try our Pension Calculator to Estimate Savings

Real-World example: Shared Pension Benefits in Practice

Consider a law firm with three partners and five employees. In 2025, the firm implements an EE and ER pension plan:
  • Employees (EE) contribute 4% of salary.
  • Employer (ER) contributes 6% of each participant’s salary.
  • Partners add a cash balance plan on top for additional tax deferral.
By doing so, the firm saves over $120,000 in taxes while each employee builds substantial long-term savings.

This structure also fosters loyalty—staff turnover dropped 30% after implementation.

Steps to adopt an EE and ER Pension Plan in 2025

Step 1

1. Evaluate Company Goals
Assess objectives—tax reduction, employee retention, or executive benefits.

Step 2

2. Consult a Pension Actuary
Design contribution formulas and ensure compliance with IRS and ERISA rules.

Step 3

3. Draft the Plan Document
Include EE and ER contribution schedules, vesting rules, and eligibility.

Step 4

4. Implement Payroll Integration
Automate employee deductions and employer matching.

Step 5

5. Communicate and Educate
Launch informational sessions explaining contribution benefits.

Step 6

6. File and Fund Before Tax Deadlines
Take advantage of extended deadlines under SECURE Act rules.

Potential Risks and How to Manage them?

Like all qualified retirement plans, EE and ER pension plans require proper management:

Funding Risks: Ensure long-term ability to sustain employer contributions.

Compliance Oversight: Annual non-discrimination testing is essential.

Employee Participation: Keep EE contributions reasonable to encourage participation.

Administrative Complexity: Partner with a third-party administrator (TPA) for calculations, filings, and recordkeeping.

When managed correctly, these risks are minimal compared to the tax and retention benefits they deliver.

The Future of EE and ER Pension Plans Beyond 2025

With more states introducing mandatory retirement programs and ongoing federal incentives, the EE and ER pension plan model fits perfectly within the evolving U.S. retirement landscape.

It’s a balanced approach that addresses the modern workforce’s key concerns: security, tax efficiency, and shared responsibility. As more employers embrace these plans, we may see a resurgence of defined benefit-style programs that combine the best of old and new retirement systems.

FAQ

1. What does EE and ER mean in pensions?

EE stands for Employee; ER stands for Employer. It represents shared contributions in a retirement plan.

2. Can any company offer an EE and ER pension plan?

Yes—businesses of all sizes can adopt them, though design complexity increases with company size.

3. Are EE contributions tax-deductible?

Generally yes, employee contributions are pre-tax or tax-deferred, depending on plan type.

4. How are ER contributions treated?

Employer contributions are deductible business expenses, reducing taxable income.

5. Can EE and ER pension plans coexist with 401(k)s?

Absolutely. Combining multiple plans increases overall retirement contributions and tax savings.

Conclusion: The Time to Act is Now

As we move deeper into 2025, the EE and ER pension plan stands out as one of the smartest, most flexible ways for employers and employees to prepare for retirement.

With strong tax benefits, enhanced employee loyalty, and SECURE Act incentives, it’s clear that this shared model is more than a trend—it’s the future of retirement planning.

Contact Us (Pension Deductions) today to see how much you could save by setting up a retirement plan before filing your return.

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