Types of Plans

A 401(k) plan allows employees to contribute a portion of their income to an employer sponsored retirement plan on a pre-tax basis. The employer may choose to contribute matching amounts into the plan. The employer can also use the plan to provide profit sharing contributions to all eligible employees. Highly compensated employee deferral and match contributions are limited by discrimination testing.
 

This plan is similar to the traditional 401(k) plan with the exception that highly compensated employee contributions are not limited by the discrimination testing. The employer must either make a 3% Safe Harbor non-elective contribution or a Safe Harbor match contribution of at least 100% of compensation on the first 3% deferred by the employee plus 50% on the next 2% deferred. Both of these Safe Harbor contributions are 100% vested immediately.

Roth 401(k) is an optional feature of a 401(k) plan that permits plan participants to make after-tax salary deferrals, regardless of their income, unlike a Roth IRA, where eligibility is based on one’s tax filing status income level. Roth contributions grow tax-free and are not taxed when distributed, provided the necessary requirements are met. If the employer elects to offer the Roth 401(k) provision, participants will have a choice of making pre-tax or after-tax salary deferrals, or a combination of both.
 

These plans eliminate many of the testing requirements of a standard 401(k) plan in exchange for restrictions on contributions, and the timing of setup and communication of annual employer contribution requirements to employees. 

This is also referred to as a Cross Tested Plan. The goal of this type of plan is to maximize benefits for a group of employees (usually owners) while minimizing the contributions required for other groups (usually non-owners). Employees are divided into groups (or classes) with discretionary contribution rates for each group. 

These plans utilize allocation methods that base contributions on both the age and compensation of eligible employees, similar in concept to a defined benefit pension plan, but with discretionary contributions. For such plans, non-discrimination testing is based on the anticipated benefits at retirement, similar to defined benefit plans, as opposed to the level of contributions made in that particular year. In an age-weighted plan, the participant’s age, or length of time until retirement, is factored into the allocation formula on an individual basis, so older participants receive a larger share of the contribution.
 

This plan type was designed for employees to share in the employer profits. Employer contributions are generally allocated to the participants in proportion to their compensation. 

This type of plan correlates the employer contribution formula with Federal Social Security benefits. The Internal Revenue Code allows additional allocations on the compensation in excess of the Social Security Taxable Wage Base because these dollars do not accrue social security benefits. 

A hybrid of the old defined benefit plans that companies used to have that promised a monthly benefit when you retired. The old defined benefit plan does not have an annual contribution limit, unlike your standard 401(k) profit sharing plans that has a limit of $49,000 per person (in 2011). We use the contribution rules from the defined benefit to fund the owner’s contribution in the cash balance plan, then we use testing rules to make a 5% to 7.5% contribution for the staff in the company’s 401(k) profit sharing plan. Sounds complicated, right? Well just look down below to see some examples that will help you visualize what can be done.
 

Identifies the specific benefit that will be payable to you at retirement. Your basic retirement benefit is usually based on a formula that takes into account factors like the number of years a participant works for the employer (years of service) and the participant's salary. Your retirement benefit is generally provided in the form of regular payments over your lifetime beginning at what the plan calls "normal retirement age," which is typically age 65. This stream of periodic payments is generally known as a pension or sometimes called an annuity.

 A 403(b) plan is a retirement savings plan sponsored by 501(c)(3) entities (non-profit organizations) for their employees.  Assets may be invested in either annuities or mutual funds. The features of a 403(b) plan are very similar to those of a 401(k) plan. Employees may make salary deferral contributions that are usually limited by regulatory caps. The employer may, but is not required to, make matching or non-elective contributions to the employees. 

For money purchase plan, the annual employer contribution is fixed by a formula stated in the plan document. The employer must contribute according to the plan's established formula.

• Standard Prototype
• Non-standard Prototype
• Custome Documents

• Adoption Agreement
• BASE Document
• SPD - Summary Plan Description
• Loan Policy - if necessary
• Trust Agent
• Beneficiary Form
• File SS-4 if need plan to obtain TIN (Trust ID Number) from IRS