Money Purchase Pension Plan
A fixed contribution percentage (contributions are limited to the lesser of $45,000 or 100% of compensation.)
Profit Sharing Plan
(Pro-Rata or Integrated with Social Security)
Flexibility in contributions from 0% to 100% of total eligible compensation. Integrated plans benefit those employees who earn more than the Social Security Wage Base.
Profit Sharing Plan (Age-Weighted)
Contributions are allocated based on age. Allows for greater funding on a current basis for older employees. Flexibility in contributions from 0% to 100% of total eligible compensation.
Profit Sharing Plan (Cross-Tested)
Allows for allocating the contributions in a manner that enables highly compensated employees to achieve higher contributions; however, discrimination testing is conducted based on a crossing of benefits utilizing defined benefit plan features. This type of plan is generally more costly on the front-end.
Profit Sharing Plan (401(k) or 403(b) Features)
Allows employees to defer a portion of their compensation (cannot exceed $16,500 for employees under the age of 50 and $22,000 for employees 50 and older).
A vesting schedule can reduce the cost of short-term employees. After the effective date of the plan, each participant is 0% vested in the first year, and 20% each year following, up to 100% vested in the sixth year of employment. (If the plan has more than a one-year eligibility requirement, participants are immediately 100% vested.) A 3-7 year graded vesting schedule may be used in plans that are not "top heavy." A 5-year "cliff vesting schedule" may be used for plans that are not "top heavy." Additionally, matching contributions must use a 2-6 year graded vesting schedule.
Defined Benefit Plan
Recent law changes have once again made defined benefit plans extremely attractive for high income earners trying to increase their tax deduction and their tax deferred savings. New cross-tested cash balance defined benefit plans allow multiple benefit formulas for different employees within the same employer. In addition, if the employer also contributes to a defined contribution plan, these contributions can be used to satisfy the funding requirements of the cross-tested cash balance defined benefit plan.
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