There are basically four types of Defined Contribution Plans:
Profit Sharing
401(k)
Money Purchase Pension
Employee Stock Ownership
If the Employer would rather provide a projected level of benefits at retirement, usually expressed as a percent of the final average compensation, then the Defined Benefit Pension type of plan is selected.
The Defined Benefit Plan provides a formula specified retirement benefit with the annual contribution varying each year based on the plan’s investments, mortality and turnover experience. Frequently, in a Defined Benefit Plan, the small business Owner (those with less than ten employees) will typically see 80% or more of the annual deposit allocated to his or her personal benefit.
All companies have different objectives. Your PPBS consultant will assist you in determining your objectives and help you design a benefits package to meet those objectives. Issues including tax considerations, contribution flexibility, employee demographics, compensation ranges, turnover, competition, and investment philosophy are taken into consideration in designing the plan(s).
Any business can adopt a plan: Corporations (regular or S type), Sole Proprietorships or active Partnerships. The only criterion in a non-corporate situation is that income used to fund the plan must be “earned income” vs. “passive income.” It should be noted that even self-employed individuals can adopt a plan.
Pension and Profit Sharing Plans are an attractive employee benefit because employers who choose to provide them help participants accumulate wealth for retirement and future needs on a tax deductible basis. Small business owners find that the cost to provide these benefits is more than offset by the increased productivity from an appreciative work force as well as the enhanced attraction and retention of quality employees.
Pension & Profit Sharing Plans are popular for good reasons:
Employer Contributions to the Plan are Tax Deductible
Investment Return on these Funds is Not Taxed until Distributed
Employees Do Not Claim Income for Tax Purposes Until Distributed
Pacific Pension & Benefit Services, Inc. offers numerous Pension and Profit Sharing Plans tailored to your needs. These plans can be totally funded by employer contributions, employee contributions, or a combination. Usually there is some employer participation in the contributions to the plan, and if the employee makes contributions to the plan they must have some discretionary income.
