Retirement Plan Design

When retirement plans are being created for small businesses, many factors need to be considered to ensure those plans will function correctly.  Important decisions need to be made about plan provisions, investments, recordkeeping, and many other considerations.  Benefit Equity Inc. is an experienced team of consultants, administrators and actuaries who help employers navigate the complexities of creating retirement plans.

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Plan provisions:

How long should employees wait until becoming eligible to participate?  Allowing entry too soon could increase the employer contributions more than necessary. Hold employees out too long and your recruiting efforts could be negatively affected, since each employer has very different priorities.

This provision determines actual participation in the plan.  Entering the Plan immediately after meeting Eligibility (or entry on a monthly, quarterly or semi-annual basis), needs to be considered based on company priorities.

Vesting means “ownership.”   There will be many Plan options to consider such as ideal timing when a Participant will be allowed to own company contributions.  Whether immediately, a maximum of six years, or somewhere in between, all of these options are allowed.  When considering vesting, the clock will begin ticking from either an employee’s hire date or at the time the plan begins.  

401(k) Plans do not require any company contribution.  When the employer desires to help their employees achieve their retirement goals, a matching contribution is the most popular option.  This option requires employees to participate to get additional money. There is also a contribution called Safe Harbor, where an employer gives eligible Participants 3% of their salary and employees receive money whether or not they participate in the 401(k) Plan. The goal for every plan designed by a BEI consultant is to understand the employer’s needs and design a contribution that meets the employer’s budget.

Allowing Participants to borrow money from their retirement account is a provision that may or may not fit your company philosophy.  BEI consultants help you understand the pros and cons to ensure a prudent decision on offering Participant loans.

Plan Types:

Also known as Defined Contribution Plans.  There are several 401(k) styles available to employers. BEI’s experienced team ensures the right Plan style is selected for your firm.  401(k) Plans allow employees to defer a portion of their income into an investment account. The maximum is $18,000 for 2017 and can be adjusted by the government from time-to-time. Participants age 50 and over can utilize the “catch-up” provision and defer an additional $6,000 per year.

This type of plan is designed for nonprofit organizations, schools or churches. They essentially operate like a 401(k) plan with the exception of a couple government regulations.

Also known as Defined Contribution Plans.  Profit Sharing Plans allocate employer contributions to all eligible participants, based on a discretionary formula designed to fit a company’s budget.  They can be set-up as a stand-alone plan or be added as a provision to a firm’s 401(k) Plan. The maximum deductible contribution for a corporation is 25% of “earned income”/ eligible payroll.  Different limits apply for Sole Proprietors.

Also known as a “DB Plan” or “Pension Plan.”  After an affordable budget is determined, a formula is created to project a benefit at retirement and an employer makes a contribution each year to meet that projected benefit.   The annual contributions represent all Participants and all the money is combined and invested together.  Unlike 401(k) Plans and Profit Sharing Plans, Defined Benefit Plans require an annual contribution.

Cash Balance Plans are Defined Benefit Plans by definition, with the added benefit of calculating a hypothetical account balance by person. They are often utilized with partnerships or companies with multiple owners, either with disparity in ages, or the desire to fund at different levels.  Assets are invested together as a pool of money like DB Plans.

Combining a pension plan (Defined Benefit or Cash Balance) with a 401(k) Profit Sharing Plan (DC) provides owners maximum tax savings and benefits while truly minimizing the cost of including the rank-and-file employees. If the business is still paying significant taxes after funding the 401(k) Plan, this design may be the perfect solution.

Also known as Defined Contribution Plans.   ESOP’s are retirement plans that allow ownership of a business to be transferred to eligible employees and pay out the business owner(s) and to transfer the control of said business to the management team.  Whether the ESOP is leveraged by borrowing money from a financial institution or funded with previously contributed Profit Sharing dollars (or both), this type of plan could make sense for companies with an appropriate level of payroll, earnings, minimal debt and a continuation plan.  

What our clients say

“BEI is what I call a best in class provider and I work very closely with them. They are a major asset to our firm and our clients and BEI is the only TPA I would consider for our retirement plan solutions.”