Types of Plans

401(k) Plans

A 401(k) plan is a defined contribution (DC) plan, typically a profit sharing plan that contains a cash or deferred arrangement as described in section 401(k) of the Internal Revenue Code. A cash or deferred arrangement is simply one that allows plan participants to elect to defer a portion of compensation, their elective deferrals, and have it contributed to the plan on their behalf, typically through payroll withholding.

The employer may contribute to the plan by matching all, or a portion, of the elective deferrals or by making non-elective, or profit sharing, contributions to all eligible participants.

401(k) plans are ideal for:

  • Employers who are initiating a plan due to employee demand
  • Employers wishing to maximize contributions
  • Employers wishing for discretionary contributions

Safe Harbor 401(k)

Safe harbor 401(k) is one of the most significant pieces of retirement legislation that has emerged in the last several years; it is also one of the most popular 401(k) plan designs amongst small business owners. A safe harbor 401(k) plan is very similar to a traditional 401(k) plan; the primary difference is how a safe harbor plan satisfies the IRC’s nondiscrimination requirements.

Important conditions must be met in order to establish a safe harbor retirement plan, including a required, non-elective employer contribution that is 100% immediately vested and annual written notification to all participants.

Safe Harbor 401(k) plans are ideal for:

  • Small business owners
  • Employer plans that have a low rate of participation
  • Plans that have difficulty satisfying IRS nondiscrimination testing

New Comparability/Cross-tested

New Comparability plans, often referred to as cross-tested plans are a hybrid plans that combine features of both defined benefit and defined contribution plan generally to skew the employer contributions in favor of the older, higher paid employees. These plans provide the ability to create multiple benefit levels and are flexible in their contributions.

Cross-Tested Plans are ideal for:

  • Smaller businesses
  • Employers who are older than some employees
  • Employers desiring larger contributions for themselves and possibly other key employees
  • Employers desiring flexible contributions

ERISA 403(b)

A 403(b) plan (also called a tax-sheltered annuity or TSA plan) is a retirement plan offered by public schools and certain 501(c)(3) tax-exempt organizations. Employees save for retirement by contributing to individual accounts. Employers can also contribute to employees' accounts.

403(b) plans are ideal for:

  • Organizations who wish to offer flexibility in contributions
  • Organizations who wish to allow their employees to defer some of their salary, but may not wish to make employer contributions

Defined Benefit

This is a type of qualified retirement plan that promises a specific benefit at retirement usually based on some actuarial assumptions that include assumed interest rates, salary and years of service.  The contributions are generally much larger to fund for the retirement benefit and these contributions are required to be contributed every year.

A Cash Balance Plan is a Hybrid Defined Benefit Plan that looks like a Defined Contribution Plan, that has a fixed contributions are credited to each participant at the end of each year.  The plan appears to the participant like a typical Defined Contribution (401k) account.

  • Employers wishing to maximize contributions
  • Employers with substantial resources
  • Employers with stable income

Cash Balance

A Cash Balance plan is a type of Defined Benefit plan. By taking advantage of age and salary differences, a Cash Balance plan tilts the contributions towards a desired employee or group of employees. Unlike a traditional Defined Benefit Plan however, a Cash Balance plan provides a "hypothetical" account balance for the participants which accrues interest at a pre-defined government rate.

Cash Balance Plans are ideal for:

  • Employers who are older than some of the staff employees
  • Employers desiring larger contributions for certain classes of employees
  • Employers with substantial resources
  • Employers with stable income