Employer-Sponsored Retirement Plans
Creative Design for Employer-Sponsored Retirement Plans
Quantum Strategies Wealth Advisory provides a comprehensive and innovative analysis of your current employer/employee environment to tailor recommended retirement plan offerings for your employees utilizing a combination of qualified and non-qualified plan design. By combining multiple qualified and non-qualified plans, the employer has the ability to customize solutions to maximize contribution to the ownership/senior management team or design programs to retain key employees and/or maximize employee utilization and satisfaction.
Fiduciary Role to Qualified Plans
Administering your plan and managing the assets require certain actions and involve specific responsibilities to be in compliance with ERISA. One requirement has been expanded as recent regulations require more comprehensive written disclosures by service providers to 401k plan fiduciaries. The result has been an additional burden on the plan fiduciary to act prudently and solely in the best interest of the plan’s participants and beneficiaries when selecting or monitoring plan service providers.
This increased level of liability positions an employer as the plan fiduciary with needing to provide employees access to specific, unbiased investment advice. Meeting your fiduciary responsibilities can be challenging and complex, with an increasing level of liability and risk of lawsuits for the plan sponsor (learn more about our Fiduciary Responsibility here).
Quantum Strategies Wealth Advisory can position your fiduciary responsibilities with the largest amount of relief available with our 401k Administrative Services. Our retirement planning experts work with you to review your existing plans or assist with establishing new plans. Quantum’s 401k consulting group acts as the investment fiduciary and works with the board to determine if an administrative fiduciary is desirable.
Offering a retirement plan to your employees can be a competitive component in assisting with employee retention. Making a retirement plan a part of your employee’s benefits package can position you to attract and retain top talent. The employees participating in the plan, their beneficiaries and you, the employer, all benefit when a retirement plan is in place.
Qualified Retirement Plans
Why Qualified Retirement Plans?
Qualified retirement plans offer many benefits for the employee, increasing satisfaction and retention, and providing the foundation for a solid retirement program. For the employer, they provide tax incentives.
Traditional Profit Sharing
This type of defined contribution plan allows for participating employees to make contributions to their company’s retirement plan before taxes are deducted from their pay. This plan follows a traditional salary ratio method, which is calculated to allocate employer contributions to all participants on an unchanging basis. There are several types of 401k Plans such as safe harbor 401ks, SIMPLE 401ks, and others, which can have a variety of differing features and requirements.
This type of pension plan is linked to a person’s Social Security benefits. A person’s pension plan benefits are combined with his or her Social Security payments to reach a specific total amount. A pension benefit may be reduced by up to 50% depending on a person’s actual Social Security payment to attain a specified total pension goal.
New Comparability / Cross Tested
The primary focus for testing in retirement plans concentrates on the concept of non-discrimination. When allocating the profit sharing contributions in retirement plans, it is vital to make sure Highly Compensated Employees (HCEs) are not favored. Cross testing, or New Comparability, permits a plan to give a participant a certain dollar or percentage contribution but allows the contribution to be tested on a benefits basis. The participant age is taken into effect, providing the opportunity for the actual contribution number to be converted into a number which is the amount that the benefit would be worth at retirement. This design is ideal when targeted participants are older than the remaining participants.
This type of profit sharing plan uses an allocation formula to divide employees into groups; classifying them as “preferred” and “non-preferred.” Based upon relative age and compensation, contributions are allocated within each group. Adding a 401k salary-deferral option is allowed with this type of Plan design. Complex actuarial contribution calculations and nondiscrimination testing are typically associated with these types of plans.
This type of plan is a defined benefit plan, not a defined contribution plan, which defines a “pay credit” and an “interest credit” for each participant, which can be fixed or linked to a variable rate. When a participant becomes entitled to his or her benefit, typically upon retirement, a participant may have the option to collect the benefit via annuity-type payments based upon his or her account balance, or as a lump-sum payment.
Commonly referred to as pension plans, the employer, not the employee, funds this type of plan and it promises participants a specific monthly benefit upon their retirement. Benefits are often calculated factoring an employee’s age, years of service, and salary. The Federal Employee Retirement Income Security Act (ERISA) plans are in most cases, insured by the Pension Benefit Guaranty Corp.
Non-Qualified Retirement Plans
Why Non-Qualified Retirement Plans
Qualified plans are retirement plans that offer tax-deferral benefits. There is a limit on qualified retirement plan accounts. If this limit has been reached, it may be time to look into non-qualified retirement plans—plans that do not provide tax benefits to the employee but are much more flexible. All of your valuable employees should be considered for non-qualified retirement plans. There are a wide variety of solutions available, giving the employer the flexibility to make that decision. These are selective benefit plans on top of already existing retirement plans. They are not required by ERISA although some plans do include minimal ERISA compliance.
Goals of non-qualified retirement plans:
- Retirement Plans
- Retain key employees
- Increase employee loyalty
- Assurance that employees will continue to produce at a high rate
Golden Handcuff Solutions
“Golden handcuffs” are non-qualified retirement solutions that provide incentives for key employees to stay. The plan will apply if the employee stays a certain number of years but will allow the employer to recover costs if the employee leaves early.
162 Bonus Plans
A 162 executive bonus plan allows business owners to provide additional supplemental benefits for key employees utilizing tax deductible company funds. These dollars are provided to key executives who have control over the selection of the purchased life insurance policy and can designate the beneficiary. The employer avoids plan administration and ERISA. The employee has maximum control over the assets.
Restrictive Executive Bonus Arrangement (REBA)
A REBA is a straightforward way of rewarding a key executive that is about to max out the current retirement plan(s). REBAs provide the same advantages of the 162 Bonus Plans while providing an increase in employer protection. The employee receives the additional funds as compensation and maintains an increased incentive to remain with the employer.
A Salary Deferral is offered to a highly compensated employee who is maxed out on 401k contributions. This plan does not provide any immediate tax deductions for the employer but does provide the employer more control over the assets. Minimal ERISA compliance is involved. The employee contributes to the plan costs with the ability to defer more income.
Supplemental Executive Retirement Plan (SERP)
A SERP is set up for a highly compensated employee that does not need current additional income but wishes to defer income into the future for retirement. This provides the employer control over the assets, which have minimal ERISA compliance requirements, and allows for a flexible structure of benefits. The employee is able to maintain a high standard of living into retirement.
Key Person Coverage
Many of the non-qualified plans can serve a dual purpose protecting the employers from the disruption in business that would occur with the loss of a key employee. The employer receives assurance that business will be protected from a major disruption and the employee receives an incentive to stay and continue to have a major role.
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