Millions of American workers don't have access to 401(k) retirement plans. Many of these people are self-employed or younger workers; others work for smaller companies without established benefit packages. Sometimes, other employer benefits are offered in lieu of a 401(k). Whatever the reason, such workers need to find alternative ways to save for retirement and, in some cases, could consider switching to another company.

The Role of a 401(k)

Like many defined-contribution retirement plans, the 401(k) plan takes its name from a provision in the Internal Revenue Code (IRC). Section 401(k) of the IRC was enacted in 1978 to give a tax break to working civilians who deferred income for retirement.

The government never envisioned section 401(k) transforming the way employers and employees handled retirement investments. Those innovations came two years later, when consultant Ted Benna created the first true 401(k) plan with the Johnson Companies. Benna's plan has been copied and modified ever since.

Today, employees can choose to defer income through automatic deductions from paychecks into employer-sponsored 401(k) plans. Deferred money is left untaxed and can be directed to any investments listed in the plan, most of which are mutual funds. Deferred funds must be left in defined-contribution plans until an employee reaches age 59½ unless special provisions apply; if not, the funds are subject to early withdrawal penalties.

Despite the myriad restrictions – and the fact that most 401(k) plans offer very limited investment choices – many workers heavily rely on their 401(k) investments for retirement.

Most private American workers simply expect their employers to offer plans, and many retirement planning guides seem to take it for granted that 401(k)s will play leading roles for workers. The reality is quite different: Only 57% of American workers have access to employer-sponsored defined contribution plans, according to a March 2015 study by the U.S. Bureau of Labor Statistics (BLS), and only 39% were active participants.

Those numbers are actually a little deceiving; access rates climb to 66% and participation rates jump to 47% for full-time workers. The figures are even higher when you exclude unionized labor, where workers have other collectively bargained benefits available. Still, plenty of Americans don't have access to a 401(k) plan and need to find other ways to save for retirement.

Why Your Employer Doesn't Offer a 401(k)

The most common reason an employer doesn't offer a 401(k) is because most of their jobs are entry-level or part-time. The average worker in these positions is either very young or living paycheck to paycheck, so saving for retirement is difficult; most would pick getting more money up front instead of a retirement plan anyway.

There are other reasons why your employer might not offer a plan. An employer might not have the experience or time to create an individually designed plan or have a go-to financial or trust institution. In these cases, plenty of employers make the decision not to offer benefits rather than spending time and money chasing a good sponsor. Retirement plans are cheaper than ever to set up, but not every business knows this. “Small businesses often don’t offer 401(k) plans because they are very expensive to administer. IRS testing and reporting requirements can run easily to $20,000 for the smallest plan,” says Kristi Sullivan, certified financial planner, Sullivan Financial Planning, LLC, Denver, Colo.

A 2014 study by Capital One found that just 25% of firms with fewer than 50 employees have deferred-contribution plans in place. There are lots of benefits to working for a small business, but retirement plan options generally aren't one of them.

Some companies used to offer 401(k) plans, but decided to drop them. This sometimes happens because a company is losing money and scrambling to reduce expenses. Other times, it's because new management came in and is looking for a different option, or because workers aren't participating in the plan and it's no longer sensible to keep it open.

Not having the option of a 401(k) can pose a big problem for mid-career and older workers, says Stephanie Genkin, CFP®, founder of My Financial Planner, LLC, in New York, N.Y. “This is typically the time people try to play catch-up with retirement savings. Even though workers 50-plus can contribute an additional $1,000 to an IRA, it’s still quite small in comparison to the $18,000 an employee can make to a 401(k) or 403(b), not to mention the catch-up for 50-plus [workers], which is $6,000.”

Alternatives to a 401(k)

The most obvious replacement for a 401(k) is an individual retirement account (IRA). Since an IRA isn't attached to an employer and can be opened by just about anyone, it's probably a good idea for every worker – with or without access to an employer plan – to contribute to an IRA (or, if possible, a Roth IRA). “These tax-advantaged accounts do two things: First, earmark money for retirement savings, making it less likely to be spent beforehand; second, provide tax savings of potentially tens or hundreds of thousands of dollars over a saver’s lifetime,” says Jonathan Swanburg, investment advisor representative, Tri-Star Advisors, Houston, Texas.

However, there are limitations to an IRA. It's very unlikely a worker can completely replace a 401(k) with only an IRA. Most glaring is the IRA's contribution limit, which is a relatively paltry $5,500 per year versus the 401(k) limit of $18,000.

Some employers offer matching contributions for their 401(k) plans, which is essentially free retirement money for the worker. No IRA can include this kind of matching contribution, since the IRA isn't tied to any employer. Given these kinds of limitations, workers should supplement their IRAs with other retirement strategies.

Depending on your employer, it's possible to have other types of retirement plans. These include SEP IRAs, SIMPLE plans or stock options. “Every business is unique, which is why retirement plans are not ‘one size fits all.’ SEP IRAs and SIMPLE IRAs are excellent alternatives to a 401(k) plan for self-employed people and businesses with 100 or fewer employees,” says Michael J. Marini, president and financial advisor, Orlando 401k Specialists, Altamonte Springs, Fla.

Certificates of deposit (CDs) were once a very attractive savings vehicle, but years of low interest rates have effectively crippled them as a serious option. There are other riskier or more expensive alternatives for tax-deferred retirement income, such as annuities or permanent life insurance policies.

It's always better to find tax-free or tax-deferred savings vehicles. Once these options have been exhausted, workers can also turn to traditional investments: mutual funds, stocks, bonds or rental property.

The Value of a 401(k)

A well-run 401(k) can be a boon to retirement savings, but workers can find plenty of other ways to save money. It's too simplistic (and just not true) to say that any company offering a 401(k) is good and every company without one is cheap. Lots of firms offer bad 401(k) plans, just like lots of firms offer other useful benefits. You're better off evaluating the total compensation package and asking yourself, “What does my employer give me to make up for not having a 401(k)?”

Imagine that your employer doesn't offer a 401(k), but a competing firm does. Should you consider switching companies? Your employer might offer higher starting salaries instead of retirement benefits, or maybe your company has stock options, a pension or another form of alternative compensation.

The Bottom Line

The ultimate value of a 401(k) is determined by two things: how well the 401(k) is run and whether there are other, more useful benefits. If you're counting on each paycheck to just cover your living expenses, then chances are the 401(k) isn't a big deal yet. If you're getting great heath or dental benefits instead, you'd probably rather take those benefits and handle retirement investing on your own. Always think in terms of what else you are getting and what your alternatives are.

“The responsibility to fund our own retirement rests squarely on our shoulders. Regardless of whether an employer provides a defined plan or not, we need to ensure we are funding an appropriate retirement plan in some capacity,” says Jamin Armstead, owner and financial advisor, J. Dishon Financial LLC, Surprise, Ariz.

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