Types of Retirement Plans
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downloads.
Retirement Plan Feature Comparisons
These plans allow the employer to make flexible contributions to each
employee of 0 to 25% of compensation. How this total contribution is allocated
to each employee is based upon the allocation formula within the plan. Age
Weighted and Comparability formulas provide substantially greater contributions
to the older employees, owners and/or key employees. Vesting is another feature
that can be utilized to retain key employees.
Money Purchase and Target Benefit Pension
Plans
These plans have required contributions based
upon a specified formula within the document. Historically, these plans were
used as a piggyback to a profit sharing to achieve maximum tax deductions along
with flexibility in plan designs. Since
the law change has allowed for employers to tax deduct up to 25% of eligible
compensation to Profit Sharing Plan, these plans are becoming obsolete except
for in union negotiations.
These plans provide for a specific guaranteed
monthly retirement income. For older employees, they can create great tax
deductions. Participants in the plan often have difficulty understanding the
value of their benefit. The cost of these plans are determined by an actuary or
fixed investment / retirement income vehicles (412(i) Plans).
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