Finding and Building Your Ideal Defined Contribution Plan
Employers face many choices when developing or altering their defined contribution plans. Employee Benefits Law Group has the experience to help you determine the proper plan and design it so you can meet your goals, provide attractive retirement benefits and ensure the plan’s fiduciary investment structure provides as much protection as possible.
We can help you determine and implement the best combination of defined contribution plans.
Types of Plans
Most people are familiar with the most common defined contribution plan, the 401(k), which allows participants to make pre-tax salary deferral contributions that may or may not be matched by the employer. There are actually six additional types of defined contribution plans, and we can help implement any combination of them. They include:
- Profit Sharing Plans, which accumulate money through employer contributions to an account for each eligible employee.
- Money Purchase Pension Plans, which have a fixed annual rate of contribution.
- Target Benefit Plans, which specify a given benefit, such as 50 percent of salary at retirement, and base each participant’s contribution on the amount of money needed to satisfy that obligation.
- Stock Bonus Plans and Employee Stock Ownership Plans (ESOPs), which use company stock to build equity that will become a retirement resource.
- Simplified Employee Pensions (SEPs), which operate similarly to a profit sharing plan in that the employer decides how much to contribute to each participant’s account every year. Instead of making a contribution to a retirement trust for all of the participants, however, the contribution for each employee is made into an IRA for that employee.
- Tax Sheltered Annuities or 403(b) Arrangements, which are similar to 401(k)s and allow the eligible employees of certain tax-exempt organizations to specify the amount of pre-tax income that should be deducted from their paychecks and contributed to either an annuity contract or a custodial account.
The Changing Landscape
Defined contribution plan alternatives have increased in recent years. For example, profit sharing plans and money purchase pension plans can use simple formulas that allocate contributions by relative compensation or complex formulas that simulate the accruals that occur in a defined benefit plan to maximize benefits.
We will work with you to build a sound defined contribution plan that attracts and retains the best talent while protecting your goals and interests.