Profit Sharing:

Salary Ratio

• Employer allocates a uniform percentage of compensation to all participants
• Best for employers who do not wish to cover certain part-time employees and want more control over assets

Integrated

• Provides an additional share of the employer contribution to be based on compensation that would otherwise accrue minimal Social Security benefits or none at all
• Favors higher paid employees that are the same age or younger than other employees

Age Based

• Favors older participants since contributions are based on both age and compensation
• Advantageous in situations where the key employees are significantly older than other employees
• Well-suited for small business and professional practices

New Comparability

• Establishes allocation groups with different employer contribution percentages to be given to each group
• Best for small to medium groups where greater contributions for a select group are desired

401(k) Traditional and Roth

• Flexible, low-cost, and efficient retirement plans
• Attractive to younger employees and serve as an effective recruiting tool
• Offer pre-tax employee contributions and tax-deductible employer contributions
• Not favorable to highly compensated employees

401(k) Traditional and Roth with Safe Harbor

• The Safe Harbor match is a guaranteed employer contribution each year that exempts the plan from testing employee deferrals
• Allows higher paid participants to defer the maximum allowable amount

414(h) Pickup

• For government plans and exempt from non-discrimination rules applicable to private sector plans
• Treats salary reductions as employer contributions as long as employees do not have the option of receiving the benefit directly
• Because the employee contribution is mandatory and is “picked up” by the employer, it is tax-deferred

Pension:

Split Funded Defined Benefit

• All contributions are made by the employer and are split between a plan-owned life insurance policy and traditional investments such as mutual funds
• Reduced tax burden, guaranteed retirement income, and income-tax-free life insurance benefit if the owner dies prematurely
• Ideal for small business owners who are 40 to 60 years old

Fully Insured Defined Benefit [412(e)(3), formerly 412(i)]

• Employer contributions must be invested in life insurance and a fixed annuity
• Higher tax-deduction limit than most plans and lower administration costs
• Ideal for small business owners that can commit to making large, regular contributions
• Plan assets are protected from lawsuits and creditors)

Cash Balance Defined Benefit

• Specific annual employer contribution credited to each participant’s account with guaranteed return
• Accelerated (age-based) savings and a large tax deduction for the business
• Allows larger contributions for owners and key employees but also good return for rank and file
• Ideal for small business owners that can commit to making large annual contributions)

Money Purchase

• Mandatory annual employer contributions in proportion to employee wages up to limits
• Annual top-heavy testing required to avoid favoring highly compensated employees
• Higher administrative costs but contributions are a deductible business expense

Target Benefit

• Like defined benefit plans in that contributions are based on a projected ”target” benefit
• Like defined contribution plans in that benefits are based on investment performance and NOT guaranteed
• Allow older participants to receive a larger share of contributions)

 Other Plans:

SEP

• Easy to set up, no annual documents to file, and inexpensive to administer
• Ideal for self-employed and small businesses
• Can have another retirement plan along with the SEP
• Flexible: can make large percentage contributions during good financial years and reduce contributions during hard times

SIMPLE

• Easy and inexpensive to administer; no discrimination testing required
• Ideal for self-employed and companies with fewer than 100 employees
• Employer must contribute and employee may contribute
• Lower contribution limits than some other retirement plans and inflexible contributions

403(b)

• For certain employees of public schools, tax-exempt organizations, and ministers
• Shared cost of funding between employers and employees
• Reduced taxable income through pre-tax contributions
• Tax-deferred earnings on plan contributions

IRA

• Variety of plans allow individuals to save for retirement with different tax advantages, employer and employee responsibility, and contribution limits