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Starting a plan
will help your company stay competitive in today`s tight labor
market.
401(k) plans help you:
- Attract
and retain the best employees
- Help
your employees plan for retirement
- Take
control of your own financial future
401(k) plans help your
employees:
- Defer
federal and, in most cases, state income taxes
- Contribute
through automatic payroll deductions
- Simplify
investment decisions
- Receive
immediate investment return when a company match is available
Today, 401(k) plans are more
available, easier to administer and more affordable than ever
before, whether you have 50 or 5,000 employees. In fact:
- More
than 250,000 companies are already benefiting from 401(k) plans
- 29
million employees are saving for retirement through
company-sponsored plans
- Americans
have more than $1.5 trillion invested in 401(k) plans
Choosing
a Plan
There are several types of plans to choose from. Your decision will
be based upon both your own personal goals and your goals for your
company. The following questions will help you identify plans that
may best suit your company. Plan service providers will be able to
discuss your needs in detail and help you decide what type of plan
is right for you.
- Do
you have fewer than 100 employees and want to contribute up to
3% of pay?
Consider the SIMPLE
plan.
- Do
you want to include employees who work less than 1000 hours a
year?
Consider a SEP
Plan
- Do
you want contributions to vary according to company profits and
be paid to employees immediately?
Consider a cash
profit sharing plan.
- Do
you want contributions to vary according to company profits and
be payable upon retirement?
Consider a deferred
profit sharing plan.
- Do
you want to make contributions with the goal of participants
achieving a specific "target" amount of money at
retirement independent of company profits?
Consider a target-benefit
plan or a defined-benefit
plan.
- Do
you want your employees to be able to defer some of their
current income so they can save in a tax-deferred account?
Consider a 401(k)
plan.
- Do
you want to match your employees` contribution more than 3%?
Consider a 401(k)
plan.
- Do
you want to make contributions independent of company profits?
Consider a money
purchase plan.
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Types
of plans
Profit
sharing plan
A plan established and maintained by an employer to provide for the
participation in its profits by its employees or their
beneficiaries. Company contributions may be determined either by
fixed formula or at the discretion of the board of directors.
Cash
profit sharing plan
Profit sharing plan in which profits are paid directly to employees
in cash, check or stock as soon as profits are determined. (This
type of profit sharing plan is not a qualified retirement plan.)
Deferred
profit sharing plan
Profit sharing plan designed to provide benefits upon retirement.
Benefits at retirement are based strictly upon the sum total of the
contributions made and the investment results therein. The plan must
provide a definite predetermined formula for allocating
contributions made to the plan participants.
401(k)
plan
A defined contribution plan that enables employees to choose between
receiving current compensation and making pre-tax contributions to
an account through a salary-reduction agreement. Employers may also
make contributions to employees’ accounts.
Money-purchase
plan
A type of defined contribution plan in which the employer’s
contributions are determined by a specific formula, usually as a
percentage of pay. Contributions are not dependent on company
profits.
Target-benefit
plan
Contributions are based on an actuarial valuation designed to
provide a target benefit to each participant upon retirement. The
plan does not guarantee that such benefit will be paid; its only
obligation is to pay whatever benefit can be provided by the amount
in the participant’s account. It is a hybrid of a money-purchase
plan and a defined-benefit plan.
Simplified
employee-pension plan (SEP)
This is essentially an individual retirement account (IRA) to which
an employee and his or her employer may contribute. Any employer
contributions are excluded from an employee’s income.
SIMPLE
plan (savings incentive match plan for employees)
A type of pension plan that may be implemented by employers with 100
or fewer employees in which the employer matches 100% of employee
deferrals up to 3% of compensation or provides nonelective
contributions up to 2% of compensation. These contributions are
immediately and 100% vested, and they are the only employer
contribution to the plan. SIMPLE plans may be structured as
individual retirement accounts (IRAs) or as 401(k) plans.
Defined-benefit
plans
A type of retirement plan that provides each participant with a
fixed income at retirement.
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