What plan works best for your business?

PROFIT SHARING PLANS
These provide for deferred sharing of employer profits with employees. Contributions to the plan are usually discretionary, a feature many employers find desirable if they are not certain how much they can contribute to a plan from year to year.

401(k) PLANS
These allow pre-tax employee contributions, with or without matching employer contributions. The annual individual savings deferral is limited by law to $20,500 for the calendar year 2022. This amount is increased by the government each year for cost of living adjustments.

MONEY PURCHASE PENSION PLANS
In a money purchase plan, the annual employer contributions are defined. The annual contribution limit for any participant is the lesser of $61,000 or 25% of the participant’s total compensation. The dollar amount is increased by the government each year for cost of living adjustments.

403(b) ANNUITY PLANS
403(b) plans are also known as tax sheltered annuities or TSAs. This type of plan is only available to the employees of tax-exempt charitable organizations or public schools. Like 401(k) plans, TSAs can accept pre-tax contributions for employees as well as employer matching and discretionary contributions.

CASH BALANCE/DEFINED BENEFIT PLANS
This plan type pre-defines the dollar amount of employee’s retirement benefits. The employer has minimum funding requirements, regardless of profitability. Benefits received at retirement are currently limited to $245,000 per year. This maximum amount may increase each year for cost of living adjustments.

EMPLOYEE STOCK OWNERSHIP PLANS
ESOPs allow employees to become stockholders in the company through employer contributions of the company’s stock.

AGE-BASED PROFIT SHARING PLANS

Age-based plans display features of both defined benefit plans and profit sharing plans. The concept of age-base is that it allows the employer’s contribution to the plan to be allocated based on a combination of compensation and age. This means an individual who is closer to normal retirement age will receive a larger share of the contribution than a younger employee earning the same salary. Age-based plans are popular because they couple the discretionary contribution feature of a profit sharing plan with the ability to provide a larger contribution (as a percentage of pay) for those employees who are closest to retirement.