We all hope to be able to retire someday with enough retirement income to maintain our standard of living. Without income from active employment, we look to other sources of income: Social Security, personal savings and Employer-provided pensions. There is no better way for a company to accumulate a substantial nest egg for its loyal employees and the working owner than to establish a tax favored retirement plan:
1. The company gets a current deduction for contributions to the plan.
2. The amount that can be contributed can be significantly more than the contribution
allowed under an IRA or SIMPLE plan.
3. The employee pays no tax on the money contributed to the plan on his or
her behalf until a distribution is made.
4. Earnings from investments made with the funds in the plan accumulate tax-free.
Nontax reasons for setting up a pension plan include:
1. Attracting employees
2. Reducing employee turnover
3. Increasing employee incentive
4. Accumulating funds for retirement
All this good stuff comes at a price however. The company setting up a pension plan will have some professional fees to pay, for legal, accounting and maybe actuarial services. An employer will have to also make contributions for employees who meet statutory eligibility requirements. Pensions have been subject to federal legislation and regulatory requirements ever since the Pension Reform Act of 1974. New laws are enacted almost annually that have some impact on plan administration. There are annual reporting requirements (i.e. reports to government agencies) and disclosure requirements (i.e. what your employees need to be told and when).
My business provides the following services:
Plan design and consulting - that is determining in consultation with the
client and his or her advisors what type of plan or combination of plans are
most advantageous.
Profit sharing - up to 15% of up to $170,000 ($25,500) - may be integrated
with Social Security to further benefit high-paid employees.
Money purchase pension plans - up to 25% of pay, or $35,000.
Money purchase and profit sharing combinations - e.g. 15% profit sharing and
10% money purchase.
Age-based profit sharing plans - allocation skewed to older employees
Cross-tested plans - allocation by classes, e.g. senior partners, associates,
and staff.
Defined benefit plans - best for older owners who want big contributions.
401(k), with or without a match, with or without profit sharing. safe harbor
401(k) plans.
I also assist the plan sponsor with all administrative functions, discrimination testing, (ADP, ACP, HCE's, non-HCE's, coverage tests, top-heavy) contribution calculations, prepare the annual plan valuation reports, participant statements showing account balances, contributions, earnings, vesting, beneficiary designation forms (very important), qualified joint and survivor notices and waiver forms, loan applications, promissory notes, document stamp tax forms, amortization schedules, hardship withdrawals, qualified domestic relations orders and plan distribution forms.
