Plans

Profit Sharing Plan
A Profit Sharing Plan allows an employer (at the employer's discretion) to contribute and deduct from 0% to 25% of covered payroll each year. The plan can be set up to allow, within legal limits, a higher percentage contribution to the higher compensated employees. A Profit Sharing Plan is one of the most flexible qualified plans available and can be used with any number of owners, key employees and other employees. The contribution is allocated to employees in proportion to compensation and may be integrated with Social Security which results in larger contributions for higher paid employees. A vesting schedule over a period of six years encourages employee retention.
Comparability Profit Sharing Plan
A Comparability Profit Sharing Plan is a qualified plan with a specific type of formula for allocating employer contributions to eligible participants. These formulas are based upon classes of employees that must be defined in the plan document. The amount allocated to each class can be discretionary subject to the 401(a)(4) general discrimination test more commonly known as the comparability test. This test, very simplified, takes the current contribution for each participant, projects it forward to normal retirement age, and decides if the benefits are 'comparable' at normal retirement age for each participant.
This type of plan is best used by an employer that would like to give different benefits to different classes of employees. For example, an employer who would like to maximize the benefits given to the owners and upper management while minimizing the cost to all other employees might benefit from this type of plan. Two key factors in designing this plan are age and salaries of all participants. If there are large discrepancies between age and salaries of the owners/management as compared to all other employees, (i.e. the owner/management group is older and has larger salaries than other employees), then this type of plan may be recommended. This plan design has become very popular with small, professional organizations such as medical practices and legal firms. The comparability test is done annually for the plan and must pass every year.
401(k) Plan
A Defined Contribution Plan established by employers to which eligible employees may make salary deferral (salary reduction) contributions which are portion of their salaries into this plan, and contributions are excluded from their income for tax purposes (with limitations). Employers may make matching or contributions to the plan on behalf of eligible employees and may also add a profit sharing feature to the plan. Earnings accrue on a tax-deferred basis.
401(k) Safe Harbor Match Integrated Profit Sharing Plan
The Matching Safe Harbor Contribution is allocated only to eligible participants that elect to defer a portion of their salary into the 401(k) plan. The formula is 100% of the deferral of the first 3% of salary plus 50% of deferral of the next 2% of salary. The profit sharing contribution is integrated with Social Security and is discretionary. However, if a contribution is made it will have to meet the minimum required to meet the Top Heavy Test.
401(k) Safe Harbor Non Elective Comparability Profit Sharing Plan
This Safe Harbor Contribution allows the plan to automatically pass the 401(k) discrimination test (Average Deferral Percentage Test) and/or the 401(m) discrimination test (Average Contribution Percentage Test), which are required annually. The Nonelective Safe Harbor Contribution is allocated to every eligible participant and is based upon salary. The formula is 3% of annual salary.
Qualified Automatic Contribution Arrangement Plan
A 401(k) plan can offer a "Qualified Automatic Contribution Arrangement" (QACA) which requires minimum levels of 401(k) deferrals, minimum level of employer contribution and exempts the 401(k) plan from nondiscrimination and top heavy testing. Under a QACA, all employees eligible to participate in the 401(k) plan must be covered except employees who either elect not to participate or elect to participate at a different contribution rate. The minimum automatic employee deferral percentage is 3% of compensation for the first and second years the employee is covered by the QACA, increasing by 1% each year thereafter to 4% in the third year, 5% in the fourth year and 6% for each year thereafter.
The employer contribution may be either a matching contribution or a nonelective contribution. The matching contribution must be equal to 100% of the first 1% of compensation deferred and 50% of compensation deferred in excess of that 1% up to a maximum of a 6% of compensation deferral for a total employer matching contribution of 3.5% of compensation. This level of matching contribution is ½% less than that required under a traditional Safe Harbor 401(k) plan. The minimum nonelective contribution that can be made as an alternative to the match is 3% of compensation and must be made for all eligible participants without regard to whether they have made 401(k) contributions. Under a QACA, employer contributions can be subject to a two year vesting requirement.
403(b)Plan
A Defined Contribution Plan in which Plan Sponsors are limited to public schools, including colleges and universities, and tax-exempt organizations. Plan contributions generally consist of employer nonelective contributions, employer matching contributions, or employee elective salary deferrals.
Defined Benefit Plan
A Defined Benefit Plan is a qualified plan where the contribution to eligible participants is based upon a sum of money accumulating in the plan to pay benefits at normal retirement age. Using actuarial assumptions, as well as the definition of the benefit at normal retirement age defined in the plan document, the benefit at normal retirement age is computed and then reduced to the current contribution needed to meet that benefit. This differs from the other types of plans discussed in that the benefit is defined in the document rather than the allocation formula.
Cash Balance Plan
A Cash Balance Plan is a Defined Benefit Plan that has some features which resemble a Defined Contribution Plan. Each participant has a hypothetical account in which income can grow in two different ways. The first way is by receiving contribution credits which are funded by employer contributions and are a % of the participant’s salary. The second way is by the account earning an increase in interest credit which is guaranteed (and does not depend on the plan’s investment performance). Good candidates for a Cash Balance Plan are those that satisfy one or more of the following: professionals who would like to contribute more than $49,000 to their retirement plan, very profitable companies of any type and size, family and/or closely held businesses, professionals including medical groups, CPA, and law firms, as well as older owners who need to catch up with their retirement savings.
Cash Balance With Safe Harbor Nonelective Plan
This is also a Cash Balance Plan with a 401(k) add-on, commonly known as a hybrid plan. Adding a 401(k) component to a Cash Balance Plan is a desirable option because one can maximize contributions to key employees without increasing contributions to other employees. The 3% Safe Harbor Nonelective Contribution and a 3% Profit Sharing Formula is used to meet the 6% dual plan limit prescribed by the Pension Protection Act of 2006.
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