Business Retirement Plans

Safe Harbor 401k

A Safe Harbor 401(k) Plan is a relatively new type of 401(k) Plan that automatically meets certain IRS non-discrimination requirements, unlike a traditional 401(k) plan, if the employer commits to making one of two types of employer contributions.

The first is a of pay non-elective (profit sharing) contribution required to be made on behalf of any participant who has met the eligibility requirements for salary deferral contributions, whether or not the participant actually participates in the salary deferral arrangement.

The second type of contribution is an employer matching contribution whose formula, in the aggregate, may not be less than on the first of a participant’s pay deferred to the plan and on the next of a participant’s pay deferred to the plan.

A participant must actually participate in the salary deferral arrangement to be eligible for the employer matching contribution.

The employer’s chosen Safe Harbor contribution must be vested when made for each participant, but there are certain withdrawal restrictions that apply to these types of contributions resembling those that apply to salary deferral contributions.

Works Best for

• Stable and peak businesses
• Stable earnings
• Workforce with low participation
• Has highly compensated employees

Profit Sharing

An employer profit sharing contribution is a contribution made by the employer to an employer sponsored qualified retirement plan. Eligible participants share in this contribution based on a predetermined formula used to allocate this contribution amount.

The plan need not be a 401(k) plan, but if it is a plan participant need not enter into a salary deferral arrangement to receive such a contribution. However, there may be other requirements that an employee must satisfy such as being employed on the last day of the plan year or having worked at least 1,000 hours during the plan year.

This type of contribution is typically subject to a vesting schedule.

Works Best for

• Stable and peak businesses
• Company growth and owners desire to provide employee retirement plan
• Earnings are not always stable
• Owner wants to maintain contribution flexibility
• Different contributions for different job classifications

Traditional 401(k) Plan

With this type of Plan, an employee can defer a portion of their salary into the plan. Their funds are set aside by the employer in a special account where the funds are then invested into various investment options. The contributed monies grow tax-deferred – meaning that the employee does not pay any taxes on the earnings each year until the contributions are distributed.

All amounts distributed, contributions and accumulated earnings are taxable.

Withdrawals prior to the age of 59 1/2 are subject to excise taxes, but the employee must begin minimum distributions from the plan following April 1st latter of the calendar year in which he/she reaches the age of 70 1/2.

Most employees are allowed to place up to the maximum contribution limit into their 401(k), and some employers provide matching contributions.

Works Best for

• Stable and peak businesses
• Company growth and owners desire to provide employee retirement plan
• Earnings are not always stable
• Owner wants to maintain contribution flexibility
• Different contributions for different job classifications

Roth 401(k) Plan

With this type of Plan, an employee can pay taxes upon receiving their income now to grow their retirement funds and NOT pay taxes in the future. Their funds are set aside by the employer in a special account where the funds are then invested into various investment options.

The dollar or percentage amount contributed to the ROTH 401k grows tax-deferred – meaning that the employee pays any taxes on the earnings each year until the contributions are distributed.

All amounts distributed upon withdrawal in retirement, contributions and accumulated earnings are not taxable.

Withdrawals prior to the age of 59 1/2 are subject to excise taxes, but the employee must begin minimum distributions from the plan following April 1st latter of the calendar year in which he/she reaches the age of 70 1/2. Most employees are allowed to place up to the maximum contribution limit into their 401(k), and some employers provide matching contributions.

Works Best for

• Stable and peak businesses
• Company growth and owners desire to provide employee retirement plan
• Earnings are not always stable
• Owner wants to maintain contribution flexibility
• Different contributions for different job classifications

Defined-Benefit Plans

Defined-benefit plans provide pension income to retired employees on the basis of a formula that accounts for the employee’s years of service earnings. Contributions are usually made by the employer and are tax-deferred, which means that neither the employer nor the employee pays tax on the contributions nor accumulated earnings.

These type of plans are designed to pay a fixed, pre-established benefit upon retirement and generally pays a regular monthly lifetime benefit. In some cases, employees are able to choose a lump-sum payment upon retirement which can be reinvested.

This benefit may also include a cost-of-living increase each year during retirement. The monthly benefit amount is based upon the employee’s wages and length of service.

Works Best for

• Stable, peak and business transfer phases
• Increased earnings and stable cash flow
• Business owners and highly compensated employees
• Looking for increased tax deductions
• Level of benefits to different types of employees
• Make up for lost time in accumulating retirement income

Cash Balance Plans

A Cash Balance Plan operates much differently than other retirement plans. Most are designed to benefit the owners or executives of a company.

The contributions for owners and executives are typically very large with a smaller contribution provided to staff to meet IRS requirements.

During the plan design, the sponsoring company selects the amount of contribution for each owner and executive, up to the maximum amount permitted by law.

Works Best for

• Stable, peak and business transfer phases
• Owners in mid-career
• Businesses with multiple owners of different ages
• Company’s with 50 employees who wish to have more control of the cost to provide benefits
• Tier benefits to different types of employees