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The following are the different types of plans that Abar can
administer:
401(k)
A 401(k) Plan is a Profit Sharing Plan which has a feature that permits
voluntary payroll deduction savings for employees. Employee contributions
can be pre-tax dollars, so some of the salary that would normally go to the
government as income taxes would instead go into a 401(k) account. The
employee does not pay taxes on that money until it is taken out of the
account. In addition, the earnings on the 401(k) investments are not taxable
until taken out of the Plan. Employee contributions can also be post-tax
dollars (Roth Contributions). Roth contributions and the earnings on those
contributions can be removed from the plan tax-free if certain conditions
are met.
Traditional Defined Benefit
A traditional defined benefit plan provides a retirement benefit for each
participant based upon a written formula(s). A range of contribution is
determined each year based on factors such as age, compensation and years of
service of Plan participants, investment performance of Plan assets and
prescribed interest rates and mortality tables. When appropriate, Abar will
custom design a defined benefit plan which will accomplish the objectives of
the client within initial budgetary requirements.
Profit Sharing
A profit sharing plan is a type of defined contribution plan.
The employer's contribution to a profit sharing plan is not required to
be fixed. The most common contribution formula in a profit sharing plan is a
discretionary formula under which the employer determines each year how much
to contribute. The total employer contribution may range from 0% to 25% of
eligible compensation. Contributions are allocated based on each
participant's compensation.
Cash Balance Plans
Cash Balance Plans fall under the category of defined benefits plans,
however operate like defined contribution plans (401(k), profit sharing
plan...) in certain regards. Each participant has credited to his "Cash
Balance Account" on an annual basis both a pay related credit as well as an
investment credit. The pay related credit is a percentage of total wages for
the year and the investment credit is interest credited based on some well
defined index.
- The defined contribution plan limitations are not applicable to Cash
Balance Plans (though other limitations may exist). In addition a company
can sponsor both a defined contribution plan (401(k), profit sharing...)
and a Cash Balance Plan.
- Some other advantages of Cash Balance Plans over traditional defined
benefits plans are the ease of understanding and the ability to usually
provide the same pay related credit rate to all non key employees,
regardless of age. As is true with a traditional defined benefits plan,
if the key employees are older than most of the staff, a Cash Balance Plan
can be designed that can provide very significant benefits to a select
group of key employees with a reasonable level of benefits to other
employees.
Age-Weighted
An Age-Weighted Plan may be a Money Purchase Plan with a required
contribution or a Profit Sharing Plan with a flexible contribution.
Allocations are weighted in favor of those employees closer to retirement.
Cross-Tested
A Cross-Tested Plan may use any formula which will produce the desired
results. The formula may favor any participant or group of participants as
long as the Plan is able to satisfy Internal Revenue Service discrimination
testing requirements. The Plan may have a required or a flexible
contribution. It is possible to put every employee in his/her own group to
provide the most flexibility.
Employee Stock Ownership
An Employee Stock Ownership Plan is a plan that is invested primarily in
employer securities. It may be a Stock Bonus Plan or Stock Bonus Plan and
Money Purchase Plan. This is a specialized plan only suitable for very
specific objectives. |
