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Determining the appropriate retirement plan for your employees is a vital part of your employee benefits package.  Every company has a unique set of circumstances so professional plan design at the outset can position the plan for long-term success.

• 401(k)
• 403(b)
• Profit Sharing
• Employee Stock Ownership Plan

Defined Contribution Plans are tax-deferred retirement plans, such as 401(k) or 403(b) Plans, wherein employees contribute a portion of their paycheck into an account intended to help them accumulate money for retirement.  Often the employer will provide a matching contribution to encourage employee participation and sometimes use a safe harbor matching strategy to address compliance testing issues.  Companies can also include a profit-sharing component as an additional way to contribute to participant accounts over and above the matching contribution.

• Pension Plan
• Cash Balance Plan

 A defined benefit plan, more commonly known as a pension plan, is an employer-based plan that pays benefits based on factors such as length of employment and salary history. Defined benefit plans provide a fixed, pre-established benefit for employees at retirement. Most employers have moved away from defined benefit plans and focus their efforts on defined contribution plans.

Cash Balance Plans are employer-sponsored retirement plans that incorporate the elements from traditional defined benefit plans (also known as “pension” plans) along with the flexible characteristics of defined contribution plans like a 401(k) Plan.  We find that these plans work best for highly profitable businesses with consistent cash flow.  Even though they are separate and distinct plans, in most cases, a cash balance plan is “paired” with a 401(k) plan containing a profit sharing component.  Utilizing both plans can provide contribution flexibility.

Non-qualified plans are employee retirement plans not subject to the Employee Retirement Income Security Act of 1974.  Non-qualified plans are deferred compensation arrangements, where the employer agrees to pay an employee in the future. These plans offer greater flexibility in plan design without the fear of discrimination so the benefits can be skewed to certain employee classifications.  

Oftentimes these plans are funded with Company Owned Life Insurance.  Participants in these plans become unsecured creditors of the company should the company experience financial difficulty.  While these plans are uncommon, each employer has different needs with regard to designing the right retirement plan for their employees.