- Employees set aside money for retirement on a pre-tax basis through a salary deferral agreement with their employer. Under this arrangement, the employee agrees to take a reduction in salary.
- Contributions grow tax-free until withdrawn at retirement or termination of employment.
- Only eligible for Highly Compensated Employers (HCEs) and management employees.
- The contribution limit is the same as in a 401(k) or 403(b) Plan but the contributions of the two plans are not aggregated, so a participant may contribute the maximum to the two plans simultaneously.