401(k)'s, Simple's, ESOP's or Profit Sharing Plans are excellent tax shelters regulated by the Internal Revenue Service. It is highly recommended that Employers and Employees utilize these plans to take charge, to save and to prepare for retirement with "Tax Deferred Savings".

A "qualified" retirement plan is one of the best ways to start. There is no better way for a company to accumulate a retirement benefit for its loyal employees - and itelf - than to establish a tax deferred plan.

Tax Advantages:

A company is allowed a current tax deduction for its contributions to the plan. An employee pays no taxes on money contributed until a distribution is made. Earnings from the investments made with funds in the plan accumulate tax-free. Distributions from the plan may be afforded favorable income tax treatment.

Non-Tax Reasons:

A qualified retirement plan assists an employer in attracting and recruiting employees. It helps reduce employee turnover. It provides an incentive for employees to be more productive for the good of the company. And, it is a great way to accumulate funds for your retirement and the security of you and your loved ones.

A qualified plan is very attractive to working owners of closely held corporations and to self-employed individuals. It gives their companies the best opportunity to accumulate large sums through tax free build up of contributions. Employees of these organizations must also benefit by these plans.

Plans are protected from creditors such as bankruptcy courts, liens, etc.

Qualified Retirement Plan Defined:

The term "qualified" means that the plan is afforded special tax treatment by meeting requirements defined by the Internal Revenue Code. ERISA is a technical piece of legislation enacted in the early 1970s. It deals with the establishment, operation and administration of employee benefit plans. ERISA defines an "employee pension benefit plan" or "pension plan" as any plan, fund or program which provides retirement income to employees or results in a deferral of income by employees for periods extending to the termination of employment.

Pension plans are divided into two categories: Defined Benefit and Defined Contribution.

A defined benefit pension plan promises to pay a fixed monthly benefit upon retirement. A formula or benefit level is defined. Employer contributions are determined actuarially on the basis of benefits payable, mortality, work force turnover and other factors. Certain benefits may be insured by PBGC, a government agency. These plans do not offer "individual accounts".

A defined contribution plan, also known as an "individual account plan", provides for a separate account for each participant. Contributions are made by the employer under a specified formula. Employees may also be permitted to voluntarily contribute a portion of their salary under a cash or deferred arrangement. Contributions accumulate along with investment earnings, in the employee's account. There are different types of defined contribution plans - profit sharing, 401(k), money purchase, stock bonus and ESOP, target benefit, simpleand SEPs.

Examples of Plans:

Retirement & Benefit Plans Available: (Summaries)

• Profit Sharing
• 401(k)
• Money Purchase Pension Plan
• Target Benefit Plan
• Stock Bonus and ESOPs
• Simplified Employee Pension (SEPs)
• simples
  
  

How a Plan Works:

The administration and enforcement of ERISA is complicated. The Department of Labor, the Treasury (Internal Revenue Service) and the Pension Benefit Guaranty Corporation divide jurisdiction over the plans. Because of this, each entity has its own rules and regulations.

There are four basic rules all retirement plans must meet to "qualify" for favorable tax treatment.

1. The plan must be a definite written program.
2. The plan must be communicated to the employees.
3. The plan must be permanent.
4. The plan must prohibit the use or diversification of funds for purposes other than the exclusive benefit of employees or their beneficiaries.

Therefore, it is important to comply and understand your role in a retirement plan. There are many roles to fill. Plan sponsor, plan administrator, trustee, administrative committee member, participant, party-in-interest, fiduciary, highly compensated employee, member of controlled group or affiliated service organization, enrolled actuary, officer, owner, key employee, beneficiary, etc. Each role is important and has to comply with the rules that govern them.

In Summary:

It is important that you keep your team of advisors involved in your retirement plan.

In the establishment and administration of your retirement plan, the assistance of an independent Third Party Administrator (TPA) can greatly contribute to the success of your plan. You must consistently comply with all of the regulations. A professional independent TPA is a local expert that takes a hands-on approach in dealing with the continued "qualified" status of your plan. They will assist you in performing the testing, required reporting to all interested parties, and adherence to the regulations.

Changes to the laws governing qualified plans occurs regularly. An independent TPA will keep you abreast of these changes and assist you in the continued qualification of your plan. Accrued Benefit Administrators, Inc. is an independent TPA. Please call us if you need assistance.

Remember, you must take financial responsibility for your security at retirement. Help yourself get the retirement you've dreamed of by utilizing the best method available today. It's never too late to start. Participate in a plan!

[ Go to Top of Page ]