The biggest downside of this arrangement will be contribution limits.
If you're under the normal IRA contribution limits anyway, then you're not really losing anything here. You can simply set up an IRA and put the money into it, then claim a deduction. Or put it into a Roth IRA and not claim a deduction, but not have to pay further taxes on it at withdrawal.
However, the contribution limit difference is significant for two reasons:
Contribution limits are already higher on 401(k)s than on IRAs. It's weird and it doesn't really make any sense, but such is tax law.
Normal employer contributions to an actual 401(k) or IRA do not count towards your personal contribution limits. That is, with a real IRA or 401(k), you can contribute up to your personal contribution limit in addition to what the employer contributes. But if the employer just gives you cash and you have to set up and contribute to your own IRA, then everything going into the IRA is subject to personal contribution limits because there isn't an actual employer contribution.
The combination of these factors will significantly limit the total amount that you can contribute to tax-advantaged retirement accounts compared to a real 401(k). For tax year 2023, the contribution limit on a normal traditional IRA is only $6,500. For a SIMPLE IRA, it's $15,500. For a 401(k), it's $22,500. Needless to say, that's already a pretty dramatic difference. But the total limit on how much can be contributed to a 401(k) plan (including both your own contributions and the employer's contributions) is $66,000!
Granted, in practice, most people will not really be able to get that much into their 401(k), as the personal deferral limit is still $22,500 and most 401(k) plans do not involve $43,500 of annual employer contributions for an average employee. But, still, there's quite a lot of difference between $22,500 + whatever your employer contributes and $6,500 total.
So, if what you personally plan to contribute plus the 6% from the employer is less than $6,500/yr, then you're not really out anything here. But if you want to contribute more than a total of $6,500 per year, then you would not be able to put the amount over $6,500 into traditional or Roth IRAs and would most likely have to end up putting it in a normal taxed investment account instead. Putting it in a normal taxed account, of course, means that you'd pay both normal income taxes on the income and capital gains taxes on the growth rather than only paying the income taxes and the growth being effectively untaxed.
It's also important to note that that $6,500 limit is the total maximum contribution for all of your Traditional or Roth IRAs. It's not $6,500 per account per year, but rather $6,500 total per year across all accounts. Having additional accounts does not change this, but rather just makes it a bit more complicated to make sure that you're staying under the total limit.