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Defined Contribution Plans
- Employee and Employer contributions
- Maximum annual contribution: $55,000 or 20% of compensation (based on $275,000 maximum salary) for 2018.
- Vesting schedules available when using a maximum of one-year of service for eligibility requirements
Owner-Only or Solo 401(k) Plans
- Any type of business entity can establish as long as there are no eligible employees, except a spouse.
- Participant(s) can make the maximum pre-tax employee deferrals or ROTH deferrals AND Company contributions.
401(k) Plans
- Eligible employees can make pre-tax employee deferrals to the Plan. Sometimes, this is the only contribution to the Plan, as the Employer is not required to make a contribution.
- If the Plan allows, eligible employees can make after-tax ROTH contributions to the Plan.
- If the Employer does choose to make contributions to the Plan, they may be small and can be subject to vesting (depending on the type of contribution).
- Employer may choose to make Safe Harbor, Profit Sharing and/or Employer Matching contributions to the Plan.
- Safe Harbor contributions are 100% vested, while the Employer can set a vesting schedule for Profit Sharing and Employer Matching contributions.
- There are different Profit Sharing options possible, as is illustrated on some of the following pages.
403(b) Plans
- Primarily for non-profit entities, such as churches, schools, etc.
Employer Stock Ownership Plans (ESOP’s)
- Invests primarily in the stock of the company sponsoring the Plan.
Money Purchase or Target Benefit Plans
- Employer makes fixed contributions.
- Employees CANNOT contribute.
Defined Benefit Plans
- Best suited for established companies with consistent profits and key employees who are 10 to 15 years away from retirement.
- Contribution is not limited (maximum pay per employee to determine benefits is $275,000 for 2018).
- Annual benefit from the Plan may not exceed the lesser of 100% of a participant’s compensation or $220,000, as adjusted.
- Company contributions ONLY
- Vesting schedules are available when using a maximum of one year of service for eligibility requirements.
A Defined Benefit plan could be right for someone who:
- owns a business.
- is making money.
- has made money for several years.
- has a high tax bill.
- needs a large deduction.
- wants to create a substantial retirement fund for himself/herself.
- wants the largest portion of the plan contribution for himself/herself.
- is earning more than his/her employees.
- is 48 or older.
- is older than his/her employees.
- has cash available to fund the plan.
- will have cash available to fund the plan in future years.
Cash Balance Defined Benefit Plans
- A Cash Balance DB Plan is designed to LOOK like a Defined Contribution Plan.
- The Employer makes Annual Hypothetical Contributions to the Participant’s Hypothetical Account, Interest is added, and the Participant receives a benefit at Retirement.
Differences Between a Cash Balance DB and a Defined Contribution Plan
- In a CB Plan, increases or decreases in plan assets DO NOT directly affect the promised benefit amount to the Participant.
- Contribution limits are not applicable to CB Plans (as in a DC).
- CB benefits are generally guaranteed by the PBGC.
How it works
Plan Design
- Provide advice and guidance regarding plan design, benefit formulas and eligibility.
- Provide information regarding expected liabilities, contributions, benefit payments and plan document review.
- Prepare projections for age‐weighted and target benefit plans.
- Prepare adoption agreements, summary plan descriptions, and plan amendments, as needed.
- Determine and recommend necessary plan changes, as needed.
Plan Services
- Provide annual plan valuations to determine the current funding status of the retirement plan and the contribution levels necessary to meet regulatory reporting requirements.
- Prepare Forms 5500 and related Schedules as required by ERISA and FASB.
- Determine maximum allowable benefits, contributions and minimum fundingrequirements.
- Calculate retirement, withdrawal, disability or death benefits for participants andbeneficiaries.
- Determine benefits and liabilities for terminating plans as required by various regulatory agencies.
Participant Communications
- Provide annual benefit statements, Summary Annual Reports, and other documents to communicate plan and benefit status.
Plan Administration
- Provide administration services for traditional and cash‐balance defined benefit pension plans, including actuarial certification.
- Provide administration services for traditional and cash‐balance defined benefit pension plans, including actuarial certification.