Plan Types:
We offer a variety of plans to structure a retirement program to fit your needs, including:
Today's retirement plans are more flexible than ever. As a business owner, your goal might be to maximize the tax advantages available through a retirement plan. You might want to allow for the largest possible share of the firm's contribution to be allocated to the owner and/or key employees. Maybe you are looking to allow your highly compensated employees to make maximum contributions to the plan without having to deal with the restrictive non-discrimination testing. We will help you identify your goals and determine which plan design and features work best for you and your business.
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401(k) Plans w/ Safe Harbor Provisions
If you are looking for a 401(k) plan and want to avoid the pitfalls of this type of plan inherent in the small business situation, you need to explore the Safe Harbor 401(k) plan.
These plans allow the key employee to contribute up to the maximum dollar limit of $15,000 as their elective deferral to a 401(k) plan without regard to what the other employees contribute. The maximum deferral for 2006 is $20,000 if a participant is age 50 or over.
In a traditional plan, the highly compensated employee's contribution may be limited and is dependent upon what all other employees contribute as elective deferrals to the plan. One method of meeting the safe harbor rules is to make a 3% fully vested contribution for all employees. The end result can be a very appealing plan for the small business.
| |
Age |
Salary |
3% Vested Employer Contribution |
401(k) Employee Elective Deferral |
Total Allocation |
| Owner |
60 |
$120,000 |
$3,600 |
$20,000 |
$23,600 |
| Employee |
33 |
33,000 |
990 |
0 |
990 |
| Employee |
34 |
31,000 |
930 |
0 |
930 |
| Employee |
54 |
29,000 |
870 |
0 |
870 |
| Employee |
42 |
23,000 |
690 |
0 |
690 |
| |
|
$236,000 |
$7,080 |
$20,000 |
$27,080 |
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New Comparability Profit Sharing Plans
These plans allow for the largest possible share of the firm's contribution to be allocated to the owner and/or key employees. There is flexibility in the contribution level since it is a profit sharing plan and the contribution each year is discretionary.
The plan works best when the business owner is older than most of the other employees. Below is a comparison illustrating the power of a New Comparability Plan versus a Traditional profit sharing approach. Note the increase in the owner's allocation from 50% to 83% with no increase in the contribution from the business.
| |
Age |
Salary |
Traditional Profit Sharing Allocation |
% of Salary |
New Comparability Profit Sharing Allocation |
% of Salary |
| Owner |
60 |
$176,000 |
$26,400 |
15% |
$44,000 |
25% |
| Employee |
33 |
39,000 |
5,850 |
15% |
1,950 |
5% |
| Employee |
34 |
44,000 |
6,600 |
15% |
2,200 |
5% |
| Employee |
54 |
36,000 |
5,400 |
15% |
1,800 |
5% |
| Employee |
42 |
29,000 |
4,350 |
15% |
1,450 |
5% |
| Employee |
43 |
28,000 |
4,200 |
15% |
1,400 |
5% |
| |
|
$352,000 |
$52,800 |
|
$52,800 |
|
| Owner's Share |
|
|
50% |
|
83% |
|
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Note: Allocations are dependent upon the specific ages of the employees in the firm. The allowable allocations necessary to meet the nondiscrimination requirements will vary by firm. Maximum contribution illustrated reflects limits for a 2006 Plan Year.
What is a New Comparability profit sharing plan?
A New comparability profit sharing plan is a plan design created from recent nondiscrimination regulations published by the IRS. The result is flexibility never before seen in the allowable methods of allocating the firm's profit sharing contribution among the plan participants. This type of plan, therefore, enjoys certain advantages over the traditional profit sharing plan and is worth exploring if you are the owner of a small business.
What are the advantages of a New Comparability profit sharing plan over a traditional defined benefit plan?
A New comparability profit sharing plan:
What requirements must be met to qualify as a nondiscriminatory New Comparability plan?
The design is referred to as a "cross-tested" type of profit sharing plan. The discrimination testing is done by reviewing the projected benefits at retirement as opposed to the traditional plan approach of reviewing the contributions allocated to a partcipant's account each year. In this new type of design, the plan is not required to allocate the same percentage of pay to all participants.
The projected benefits of the highly compensated employees are averaged and compared to the average projected benefits of all other employees. If the comparison of benefits fall within a particular range, the plan will pass the mathematical testing stipulated in the regulations to qualify as a nondiscriminatory plan.
The flexibility allowed will be most pronounced if the key employees are, on average, older than most of the other employees. By completing a Request for Proposal, we can determine if this plan design is right for your firm.
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412(i) Defined Benefit Plans
This plan design allows the largest possible deductions for the business owner, and it liberates owners from the contribution limitations of 401(k) and profit sharing plans.
A good candidate for this plan design is an attorney over the age of 40 with few employees (or none) and who is earning a very high income. There is little flexibility in the contribution level each year. All benefits must be guaranteed by an insurance company so all assets must be invested in insurance company contracts.
Maximum first year deductions available at selected ages:
| |
Annuity Only |
Maximum Life Insurance and Annuity |
| Age 40 |
$95,025 |
$117,572 |
| Age 45 |
$133,343 |
$165,831 |
| Age 50 |
$204,464 |
$258,512 |
| Age 55 |
$265,089 |
$349,580 |
Note: The contributions above are based upon maximums for 2005, based on the guaranteed annuity purchase rates, the guaranteed insurance cash values, and the guaranteed annuity accumulation rates of American National Insurance Company 412(i) qualified life and annuity products. The numbers also assume the business owner at the selected ages has earnings of at least $170,000 and the normal retirement age is 62.
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Additional Plan Options
Once you have chosen the type of plan, we will customize the plan features to meet your specific requirements. These features include, but are not limited to:
- Eligibility Requirements
- Vesting Schedules
- Loan Provisions
- Withdrawal Provisions
- Entry Dates
-
Rollover Provisions
There are many variations of the plan designs, but the examples should give you an idea of the retirement planning opportunites available to you as a member of the FAMB. Retirement plans are more flexible and appealing than ever before. Recent changes in the law have enhanced savings opportunities and created new incentives for employers. There has never been a better time than now to adopt a qualified plan or to review the design of your current plan.
How do I know which type of plan is right for my business? Allow us to give you a free look at the innovative plans available through this program. Complete a Request for Proposal today! You have retirement goals - let us help you achieve them.
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