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Traditional/Safe Harbor 401(k) Plans:

A traditional 401(k) planoffers maximum flexibility. Employers have discretion over whether to make contributions on behalf of all participants, to match employees’ deferrals, or to do both. These contributions can be subject to a vesting schedule (which provides that an employee’s right to employer contributions becomes non-forfeitable only after a period of time). Annual testing ensures that benefits for rank-and-file employees are proportional to benefits for owners/ managers.

A company may be able to forego 401(k) nondiscrimination testing by making a prescribed level of safe harbor contributions and giving timely notice to employees. The benefits of a safe harbor plan include:

  • Eliminating the need for 401(k) nondiscrimination tests, also known as the actual deferral percentage (ADP) and actual contribution percentage (ACP) tests, which allows the highly compensated employees to maximize their deferrals and receive matching contributions without worry of refund or forfeiture
  • Eliminating ADP and ACP test fees and the time it takes to prepare such tests, which may help businesses reduce the time spent on plan administrative tasks
  • Safe Harbor contributions may also satisfy the top-heavy required contributions

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New Comparability (or cross-tested) 401(k) plans

New comparability 401(k) plans are a plan design that may result in greater funding flexibility among the plan participants. This plan type can allow:

  • Different allocations among different groups of plan participants
  • Groups of employees to be determined by salary, service, position, or even a combination of these categories
  • The owner to receive a much larger allocation, as a percentage of pay, than other plan participants
  • An owner to select those participants he would like to reward with larger allocation

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Cash Balance plans

Given recent economic events, many business owners have seen their nest eggs shrink, and with potential new tax laws taking effect soon, business owners may be required to pay more in taxes. Defined Contribution (DC) 401(k) plans limit the amount a business owner or highly compensated employee can defer, and the amount employers can contribute. Cash balance plans combine the maximum benefit amount that can be provided by a DB plan with some of the flexibility and portability of a 401(k) or profit sharing plan.

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Multiple Employer Plans

A Multiple Employer Plan, also referred to as an MEP, is a retirement plan for businesses that typically have a common interest, but that may not be commonly owned or affiliated. These businesses are referred to as “Adopting Employers” when they elect to join the MEP. The benefits of this plan type for a small business are numerous, including: the potential cost savings compared to operating a single employer plan, fiduciary support, and plan design flexibility to name a few.

Profit Sharing Plans

Profit sharing plans can be a powerful tool in promoting financial security in retirement. They are a valuable option for businesses considering a retirement plan, providing benefits to employees and their employers. Contributions to a profit-sharing plan are discretionary and there is no set amount. One common method for determining each participant’s allocation in a profit-sharing plan is the “comp-to comp” method. Under this method, the employer calculates the sum of all of its employees’ compensation (the total “comp”).

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Money Purchase Plans

Money-purchase plans require a set amount (usually a percentage of the employee's salary) be contributed by the employer each year, even in years where there is no profit. Money-purchase plans give employers the maximum tax advantage possible, and it is possible to grow larger account balances with a money purchase plan compared to other arrangements.

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Non-Profit 403(b) Plans

A 403(b) plan, also known as a tax-sheltered annuity (TSA) plan, is a retirement plan for certain employees of public schools, employees of certain tax-exempt organizations, and certain ministers. As with qualified retirement plans, participants do not pay income tax on allowable contributions until withdrawals are made from the plan, usually after retirement. Allowable contributions to a 403(b) plan are either excluded or deducted from income. Additionally, earnings and gains in a 403(b) account are not taxed until withdrawal, and participants may be eligible to take a credit for elective deferrals contributed to their 403(b) account.  

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