2010 Qualified Plan Comparisons
| Profit Sharing | 401(k) Profit Sharing | 401(k) - EZ | Defined Benefit | |
| Plan Description | A profit sharing plan is a flexible and popular plan option. The combination of profit sharing and vesting rewards long-term employees enhancing employee satisfaction. | A 401(k) plan is simply a profit sharing plan that allows contributions from employees. | Employees contribute to the plan by making salary reductions from their paychecks. A 401(k) –EZ is a 401(k) plan designed for a company with only an owner employee (plus spouse). | A defined benefit plan is a true “pension plan” that provides the greatest ability to design larger contributions to favor older or highly paid employees. |
| Who Can Adopt? |
~Corporations ~Sole Props ~LLCs ~Partnerships ~Non-Profits |
~Corporations ~Sole Props ~LLCs ~Partnerships ~Non-Profits |
Owner Only Company ~Corporations ~Sole Props ~LLCs ~Partnerships ~Non-Profits |
~Corporations ~Sole Props ~LLCs ~Partnerships ~Non-Profits |
| Who Is Eligible? | Range from immediate to maximum of 2 years of service (immediate vesting) and age 21. May require 1,000 hours of service. | Range from immediate eligibility to maximum of 1 year of service and age 21. May require 1,000 hours of service. | Range from immediate eligibility to maximum of 1 year of service and age 21. May require 1,000 hours of service. | Range from immediate to maximum of 2 years of service (immediate vesting) and age 21. May require 1,000 hours of service. |
| When Must Plan Be Established? | By the fiscal year end (12/31 - calendar year) | By the fiscal year end (12/31 for calendar year) | By the fiscal year end (12/31 - calendar year) | By the fiscal year end (12/31 - calendar year) |
| Employee Contributions | No Employee Contributions 2010 Limit $16,500 | Catch Up Limit $5,500 (For age 50 or older) 2010 Limit $16,500 | Catch Up Limit $5,500 (for age 50 or older) | No Employee Contributions |
| Employer Contributions | 25% of pay for all eligible participants. | Limited to lesser of $49,000 or 100% of pay per participant (2010) 25% of pay for all eligible participants. | Limited to lesser of $49,000 or 100% of pay per participant (not including Catch Up) 25% of pay for all eligible participants. |
Limited to lesser of $49,000 or 100% of pay per participant (not including Catch Up) (2010) Variable based on actuarial assumptions and factors such as: ~age ~compensation ~benefit formula |
| What Are the Advantages? |
~Discretionary & flexible contributions ~4 design options: Pro-rata: same percent to all eligibles Integrated: higher wage earners receive higher percent of pay Age-based: higher wage earners and older employees receive higher contribution Cross tested: groups of employees can receive different amounts of contributions |
401(k)’s are popular with employees because they provide an efficient tax advantaged way to save for retirement. They are excellent employee benefit tools as a way to attract and retain employees. Any of the 4 profit sharing allocation methods can be used in a 401(k) plan.
Safe Harbor options to avoid discrimination testing are: Match of 100% on the first 3% plus 50% of the next 2%; or Profit Sharing of 3% to all eligible employees. Both options are 100% vested. |
~Generous contributions limits compared to compensation ~Flexibility ~Simplified and lower cost administration |
A Defined Benefit Plan often allows larger contributions than other types of plans. They are excellent vehicles for increased retirement savings and tax planning strategies. |
| What options are available? |
~Loans ~Vesting schedule ~Any size group ~Trustee or participant directed investments ~Participant bears investment risk |
~Loans ~Vesting schedule ~Any size group ~Trustee or participant directed investments ~Matching available ~Participant bears investment risk |
~Loans ~Vesting schedule ~Owner only group ~Trustee or participant directed investments ~Participant bears investment risk |
~Loans ~Vesting schedule ~Any size group ~Trustee directed investments ~Company bears investment risk |