TYPES OF PLANS

401(k) Plans

A 401(K) is a very popular type of profit sharing plan that allows participant contributions. A 401(k) plan with a vesting schedule rewards long-term employees and can enhances employee satisfaction. Any type of entity may sponsor a 401(k) including: Corporations; Sole Proprietorships; LLCs; Partnerships and Non-Profit organizations.

One of the most advantageous features is that the annual contribution is entirely discretionary. There are 4 design options available to allocate the company profit sharing contribution:

• Pro-rata: same percent to all eligibles;
• Integrated: higher wage earners receive higher percent of pay;
• Age-based: higher wage earners/ older employees receive higher contribution
• Cross tested: groups of employees can receive different contributions.

Eligibility can range from immediate to maximum of 1 year of service and age 21. The employer may also require 1,000 hours of service. The plan must be established by the fiscal year end (12/31 for calendar year companies). Other features include Participant Loans & Vesting.

401(K) Profile

Betty Sanders owns a construction company that employs 120 people. She has worked hard to attract and retain an excellent staff and workers, but competition is fierce. Betty knows she needs to have an excellent employee benefits package to keep her good employees. She is very cost conscious, which has helped with her success and she wants to be careful here as well. She is willing to make a small contribution, but wants the biggest employee relations "bang for her buck".

Design

Betty implements a 401(k) plan with a small matching contribution. This will allow her flexible contributions and the ability to help those who help themselves. A vesting schedule on the matching helps her retain employees.

Investments

For their investments, they are working with their financial advisor. The advisor recommended options and ideas for participants to achieve their goals without having to be experts in investments.

Success

The professional staff at Pension Strategies has implemented a 401(k) plan with Betty's goals in mind. The new 401(k) plan is exactly what she needs to help attract and retain employees. Ms. Sanders feels good about the benefits she is offering to her employees.

Defined Benefit Plans

A defined benefit plan is a very popular retirement vehicle for those employers who have a goal of achieving higher levels of contributions and tax deductions. Although defined benefit plans are somewhat less flexible than other types of plans, they do offer a degree of flexibility. They can be used strategically in a variety of situations including sale of a business, buying out an owner or purely for tax and retirement motivated savings. Contributions in defined benefit plans are often significantly higher than in other types of qualified plans. Any type of entity may sponsor a defined benefit plan including: Corporations, Sole Proprietorships, LLCs, Partnerships and Non-Profit organizations.

Eligibility can range from immediate to maximum of 2 years of service (with immediate vesting) and age 21. The employer may also require 1,000 hours of service.

The plan must be established by the fiscal year end (12/31 for calendar year companies). Other features include Participant Loans & Vesting.

Defined Benefit Profile

Dr. Tim Bryant is an anesthesiologist and has just turned age 51. He has a successful medical practice with substantial income and no employees. He has finished paying off his medical school loans and putting his son through college, but has yet to make any serious commitment to saving for a comfortable retirement. He knows that he is behind and wants a vehicle to help him catch up as quickly as possible.

Design

Dr. Bryant implements a defined benefit plan. This will allow him to save a substantial amount of money. He is thrilled about the tax deduction and equally as happy that he can put enough away to be able to retire according to his plan.

Investments

Dr. Bryant is the plan trustee and will make investment decisions for the plan assets. He will work with his financial planner to select an investment strategy that will match his objectives and risk tolerance.

Success

The professional staff at Pension Strategies helped Tim Bryant with the design and implementation of his new plan and will continue to assist him as his needs grow and change. As part of the annual administration process, Pension Strategies will continue to help him reach his goals. He is very relieved that he is now on the road to financial freedom.

Profit Sharing Plans

A profit sharing plan is a flexible and popular retirement plan. A profit sharing plan with a vesting schedule rewards long-term employees and enhances employee satisfaction. Any type of entity may sponsor a profit sharing plan including: Corporations, Sole Proprietorships, LLCs, Partnerships and Non-Profit organizations.

One of the most advantageous features is that the annual contribution is entirely discretionary.

There are 4 design options available:

• Pro-rata: same percent to all eligible employees
• Integrated: higher wage earners receive higher percent of pay
• Age-based: higher wage earners/ older employees receive higher contribution
• Cross tested: groups of employees can receive different contributions

Eligibility can range from immediate to maximum of 2 years of service (with immediate vesting) and age 21. The employer may require 1,000 hours of service.

The plan must be established by the fiscal year end (12/31 for calendar year companies).

Other features include Participant Loans & Vesting.

Profit Sharing Profile

Sandi and Dave Miller own a small printing business with about 5 employees. They are in their mid 40s. After several years of struggling, they have now turned the corner and are making significant profits. The Millers know that they need to catch up on their retirement efforts. They are happy to make contributions to employees, but want to keep the employee contributions to a minimum.

Design

Sandi and Dave implement a profit sharing plan with a cross-tested design. This will allow them flexible contributions, the ability to tailor contributions to different employees based on their contribution to the business and vesting to help retain staff.

Investments

For their investments, they have chosen an individual account product that will let each employee monitor the company contributions to the plan. They are working with a financial planner to pick the best option available. They are very pleased to have a professional planner to handle their investments so they don't have to take time away from their business.

Success

The professional staff at Pension Strategies helped the Millers plan their retirement future and goals. They are very happy to know that each year as they make their plan contribution, they are on the road to a secure and comfortable retirement.

Employee Stock Ownership Plans

An employee stock ownership plan (ESOP) is a defined contribution plan that provides employees with an ownership interest in the company. In an ESOP, companies provide their employees with stock ownership, normally at no cost to the employees. Shares are given to employees and are held in the ESOP until the employee retires or leaves the company.

There is an annual limit on the amount of deductible contributions an employer can make to a tax-qualified stock bonus or profit-sharing plan of 25 percent of the compensation paid during the year to the employees who benefit under the plan.

ESOPs are governed by federal pension laws, called the Employee Retirement Income Security Act, or "ERISA". ERISA sets forth clear requirements to ensure that there can be no 'preferred' classes of participants in an ESOP; all employees must be treated proportionally the same.

ESOPs require substantial planning and the expertise of multiple professionals in the areas of legal documentation, valuation of the business and qualified plan experts.

At Pension Strategies, we provide the pension expertise for our clients that are interested in using ESOPs as part of their retirement strategy.