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401(k) Plans

401(k) Plans

Profit Sharing Plans

Profit Sharing Plans

Money Purchase Pension Plans

Corporations, Sub-Chapter S, Self-Employed, Sole Proprietorships, Partnerships, LLCs and Non-Profits can establish money purchase pension plans. These plans must provide “definitely determinable benefits”. 

The plan contains a contribution formula (such as a set percentage of compensation), which is chosen when the plan is adopted, and employers must meet minimum funding requirements – contribution is mandatory (not discretionary). 

Plans must be established by fiscal year-end (December 31 for calendar year plan).

Money Purchase Pension Plans

Corporations, Sub-Chapter S, Self-Employed, Sole Proprietorships, Partnerships, LLCs and Non-Profits can establish money purchase pension plans. These plans must provide “definitely determinable benefits”. 

The plan contains a contribution formula (such as a set percentage of compensation), which is chosen when the plan is adopted, and employers must meet minimum funding requirements – contribution is mandatory (not discretionary). 

Plans must be established by fiscal year-end (December 31 for calendar year plan).

403(b) Plans

A 403(b) plan is a special type of retirement arrangement for employees of certain tax-exempt organizations and public educational organizations. Another common reference for a 403(b) plan is a “tax sheltered annuity” or “TSA”. The term “tax sheltered annuity” originated because initially an employer could fund a 403(b) plan only with annuity contracts purchased from an insurance company. Congress later amended the Code to permit an employer to fund a 403(b) plan with mutual funds as well.

A 403(b) plan usually falls into one of three types: 1) salary reduction only plan; 2) employer funded plan which includes a salary reduction feature; or 3) church plan (retirement income account).

The salary reduction plan is a popular type of 403(b) and is the easiest to administer. Since the plan does not include any employer contributions, the plan is exempt from many of the Code’s nondiscrimination requirements.  Furthermore, the plan generally is exempt from the Title I requirements of ERISA, including reporting and disclosure, because it is not an employer-sponsored plan.

The employer-funded 403(b) plan includes employer contributions and normally also permits salary reduction contributions. The addition of employer contributions subjects the 403(b) plan to many of the nondiscrimination requirements applicable to qualified retirement plans.  Furthermore, unless the employer is a church or a governmental employer, the inclusion of employer contributions subjects the plan to Title I of ERISA.  Consequently, the plan document and plan administration are more complex.

The church plan established as a “retirement income account” is the most unique type of 403(b) plan. A church plan often included employer contributions and employee salary reduction contributions. 

A 403(b) plan may be established any time during the calendar year.

403(b) Plans

A 403(b) plan is a special type of retirement arrangement for employees of certain tax-exempt organizations and public educational organizations. Another common reference for a 403(b) plan is a “tax sheltered annuity” or “TSA”. The term “tax sheltered annuity” originated because initially an employer could fund a 403(b) plan only with annuity contracts purchased from an insurance company. Congress later amended the Code to permit an employer to fund a 403(b) plan with mutual funds as well.

A 403(b) plan usually falls into one of three types: 1) salary reduction only plan; 2) employer funded plan which includes a salary reduction feature; or 3) church plan (retirement income account).

The salary reduction plan is a popular type of 403(b) and is the easiest to administer. Since the plan does not include any employer contributions, the plan is exempt from many of the Code’s nondiscrimination requirements.  Furthermore, the plan generally is exempt from the Title I requirements of ERISA, including reporting and disclosure, because it is not an employer-sponsored plan.

The employer-funded 403(b) plan includes employer contributions and normally also permits salary reduction contributions. The addition of employer contributions subjects the 403(b) plan to many of the nondiscrimination requirements applicable to qualified retirement plans.  Furthermore, unless the employer is a church or a governmental employer, the inclusion of employer contributions subjects the plan to Title I of ERISA.  Consequently, the plan document and plan administration are more complex.

The church plan established as a “retirement income account” is the most unique type of 403(b) plan. A church plan often included employer contributions and employee salary reduction contributions. 

A 403(b) plan may be established any time during the calendar year.

Defined Benefit Plan

A defined benefit plan is one set up to provide a predetermined retirement benefit to employees or their beneficiaries, either in the form of a certain dollar amount or a specific percentage of compensation. Employer contributions to a defined-benefit plan are very complex to determine and require the work of an actuary.

The assets of the plan are held in a pool, rather than individual accounts for each employee, and as a result, the employees have no voice in investment decisions. Once established, the employer must continue to fund the plan, even if the company has no profits in a given year. Since the employer makes a specific promise to pay a certain sum in the future, it is the employer who assumes the risk of fluctuations in the value of the investment pool.

Defined Benefit Plan

A defined benefit plan is one set up to provide a predetermined retirement benefit to employees or their beneficiaries, either in the form of a certain dollar amount or a specific percentage of compensation. Employer contributions to a defined-benefit plan are very complex to determine and require the work of an actuary.

The assets of the plan are held in a pool, rather than individual accounts for each employee, and as a result, the employees have no voice in investment decisions. Once established, the employer must continue to fund the plan, even if the company has no profits in a given year. Since the employer makes a specific promise to pay a certain sum in the future, it is the employer who assumes the risk of fluctuations in the value of the investment pool.

ESOPs

Employee stock ownership plans (commonly referred to as ESOPs) are a form of qualified retirement plan that invest primarily in the stock of the sponsoring employer. ESOPs are subject to the qualification rules of Section 401(a) of the Internal Revenue Code and the rules contained in the Employee Retirement Income Security Act of 1974 (“ERISA”), as they relate to eligibility, prohibitions on discrimination, vesting and fiduciary responsibility. Moreover, ESOPs are subject to a number of additional rules that are generally not applicable to other forms of qualified retirement plans, especially when the ESOP holds the stock of a non-publicly traded company. Such rules include the requirements that all purchases of non-publicly traded stock be at fair market value supported by a qualified independent appraiser, that voting rights on significant corporate matters be passed-through to the ESOP participants and that ESOP participants have both the right to require the investment diversification of their plan accounts upon attaining age 55 and the right to “put” the employer stock received upon a distribution of benefits back to the employer at current fair market value (thereby creating a repurchase liability). However, ESOPs are also subject to a significant exception from ERISA`s prohibited transaction rules that allows ESOPs to engage in a variety of financial transactions with both the sponsoring employer, its affiliate and the shareholders of the sponsoring employer.

Accordingly, ESOPs can be utilized to achieve a variety of corporate and shareholder objectives while, at the same time, providing a potentially valuable employee benefit to the ESOP`s participants.

ESOPs

Employee stock ownership plans (commonly referred to as ESOPs) are a form of qualified retirement plan that invest primarily in the stock of the sponsoring employer. ESOPs are subject to the qualification rules of Section 401(a) of the Internal Revenue Code and the rules contained in the Employee Retirement Income Security Act of 1974 (“ERISA”), as they relate to eligibility, prohibitions on discrimination, vesting and fiduciary responsibility. Moreover, ESOPs are subject to a number of additional rules that are generally not applicable to other forms of qualified retirement plans, especially when the ESOP holds the stock of a non-publicly traded company. Such rules include the requirements that all purchases of non-publicly traded stock be at fair market value supported by a qualified independent appraiser, that voting rights on significant corporate matters be passed-through to the ESOP participants and that ESOP participants have both the right to require the investment diversification of their plan accounts upon attaining age 55 and the right to “put” the employer stock received upon a distribution of benefits back to the employer at current fair market value (thereby creating a repurchase liability). However, ESOPs are also subject to a significant exception from ERISA`s prohibited transaction rules that allows ESOPs to engage in a variety of financial transactions with both the sponsoring employer, its affiliate and the shareholders of the sponsoring employer.

Accordingly, ESOPs can be utilized to achieve a variety of corporate and shareholder objectives while, at the same time, providing a potentially valuable employee benefit to the ESOP`s participants.

Cafeteria Plans

Cafeteria plans have become one of the fastest growing fringe benefits offered. These plans help attract and maintain good employees and are a simple way to reduce employee taxes as well as employer tax liability while providing quality benefits to your employees.

A cafeteria plan is a welfare benefit plan specifically authorized by Section125 of the Internal Revenue Code. Generally, employees are given a choice to “redirect” part of their salary. Each employee then uses the “redirected” part of his salary to purchase benefits from a “menu” of non-taxable benefits offered by the plan (hence the term “cafeteria”). A cafeteria plan allows employees to pay certain insurance premiums as well as medical and dependent care expense with pre-tax dollars. Amounts redirected by an employee to a cafeteria plan escape federal, state and FICA taxation. The employer saves FICA match amounts contributed to the cafeteria plan, thus reducing the employer tax liability. 

Employer tax savings generally offsets cost of plan administration.

A cafeteria plan may be set up to include all or any combination of the following:

Premium Conversion – allows employees to pay their share of premiums for health insurance, group term life insurance, disability insurance or cancer insurance with pre-tax dollars.

Medical Flexible Spending Account – allows employees to pay for common out-of-pocket medical expenses (not covered by insurance) such as deductibles, co-pays and vision and dental care with pre-tax dollars. 

Dependent Care Flexible Spending Account – offers employees the opportunity to pay for most child/dependent care expenses with pre-tax dollars that, in some cases, provides a more substantial tax savings than the tax credit they would get on the tax return.

Cafeteria Plans

Cafeteria plans have become one of the fastest growing fringe benefits offered. These plans help attract and maintain good employees and are a simple way to reduce employee taxes as well as employer tax liability while providing quality benefits to your employees.

A cafeteria plan is a welfare benefit plan specifically authorized by Section125 of the Internal Revenue Code. Generally, employees are given a choice to “redirect” part of their salary. Each employee then uses the “redirected” part of his salary to purchase benefits from a “menu” of non-taxable benefits offered by the plan (hence the term “cafeteria”). A cafeteria plan allows employees to pay certain insurance premiums as well as medical and dependent care expense with pre-tax dollars. Amounts redirected by an employee to a cafeteria plan escape federal, state and FICA taxation. The employer saves FICA match amounts contributed to the cafeteria plan, thus reducing the employer tax liability. 

Employer tax savings generally offsets cost of plan administration.

A cafeteria plan may be set up to include all or any combination of the following:

Premium Conversion – allows employees to pay their share of premiums for health insurance, group term life insurance, disability insurance or cancer insurance with pre-tax dollars.

Medical Flexible Spending Account – allows employees to pay for common out-of-pocket medical expenses (not covered by insurance) such as deductibles, co-pays and vision and dental care with pre-tax dollars. 

Dependent Care Flexible Spending Account – offers employees the opportunity to pay for most child/dependent care expenses with pre-tax dollars that, in some cases, provides a more substantial tax savings than the tax credit they would get on the tax return.

Health Reimbursement Arrangements

As the cost of medical care escalates year after year, employers are virtually forced to cut health benefits or raise plan deductibles to hold down premium costs. In establishing a Health Reimbursement Arrangement, employers can assume a modest additional financial risk, while saving thousands of dollars in premium costs. 

The Health Reimbursement Arrangement (HRA) is an Internal Revenue Service (IRS) regulated, employer funded medical expense reimbursement plan taken from section 105 of IRS code. An HRA can be coupled with a high deductible health plan or it can be offered on a stand-alone basis. Whether or not the HRA is coupled with a high deductible health plan or not – the main point is an employer-funded account for employees, under which unused amounts are NOT forfeited at the end of each plan year, but can be carried over for use in future years. 

The plan design options are virtually limitless. For example, an employer may fund the HRA from day one of the plan year or they may fund it on a pay period basis or monthly basis. The employer may choose to allow a roll over at the end of the plan year or not allow a roll over, however this is one of the most attractive benefits of an HRA. The employer may cap the maximum accumulation of funds. The employer may allow all IRS allowable expenses to be paid through the plan or they may limit or restrict what expenses are allowed. Primarily, there are 3 primary mandatory elements.

1. Employer funded only (No employee funding is allowed)

2. Only income tax deductible medical expenses may be paid from HRA funds

3. No withdrawals for any purpose other than qualified medical reimbursement expenses

Health Reimbursement Arrangements

As the cost of medical care escalates year after year, employers are virtually forced to cut health benefits or raise plan deductibles to hold down premium costs. In establishing a Health Reimbursement Arrangement, employers can assume a modest additional financial risk, while saving thousands of dollars in premium costs. 

The Health Reimbursement Arrangement (HRA) is an Internal Revenue Service (IRS) regulated, employer funded medical expense reimbursement plan taken from section 105 of IRS code. An HRA can be coupled with a high deductible health plan or it can be offered on a stand-alone basis. Whether or not the HRA is coupled with a high deductible health plan or not – the main point is an employer-funded account for employees, under which unused amounts are NOT forfeited at the end of each plan year, but can be carried over for use in future years. 

The plan design options are virtually limitless. For example, an employer may fund the HRA from day one of the plan year or they may fund it on a pay period basis or monthly basis. The employer may choose to allow a roll over at the end of the plan year or not allow a roll over, however this is one of the most attractive benefits of an HRA. The employer may cap the maximum accumulation of funds. The employer may allow all IRS allowable expenses to be paid through the plan or they may limit or restrict what expenses are allowed. Primarily, there are 3 primary mandatory elements.

1. Employer funded only (No employee funding is allowed)

2. Only income tax deductible medical expenses may be paid from HRA funds

3. No withdrawals for any purpose other than qualified medical reimbursement expenses