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What are the benefits of working with Retirement Planners?
RPA's national presence and client service capability, with over 30 years of industry experience, combined with RPA's "Super TPA" business model is simply unmatched.
Superior:
State-Of-The-Art Computer Hardware & Software Technology
Superior: Plan Sponsor & Plan Participant Support Services, Including Daily Valuation Recordkeeping
Superior: Investment Diversity By Way Of Thousands of Mutual Funds In Hundreds of Different Fund Families
Superior: Certified Pension Professional Staff
Superior: Client Loyalty & Retention
Superior: 24/7 Plan Participant Account Access Via Our Internet Website or Toll Free Telephonic VRU
Superior: Strategic Partners - Fidelity Investment Institutional Brokerage Group, Sungard Corbel, Matrix Settlement & Clearing, United Bank
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What is a 401(k) Plan?
A retirement savings plan that allows employees of private corporations and non-profit organizations to reserve money for retirement on a pre-tax basis through a plan sponsored by their employer. The Federal government has created special tax advantages for contributions made into 401(k) plans, including, but not limited to, allowing contributions deducted directly from employee pay before taxes are calculated and allowing the earnings on funds in the employee's 401(k) account to grow tax-deferred until withdrawn at retirement.
Click Here To Review A Detailed Summary Of The 401k Plan.
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Why are 401(k) plans so popular?
For Employees: 401(k) plans are popular with employees because they are able to divert a portion of their salary into an account that is set aside for their retirement while simultaneously reducing their current tax bill. Employees are not required to pay income tax on these salary deferrals until they take the money out of the 401(k) plan, at some time in the future. Often, employees are permitted to change the amount of salary deferred as their circumstances change, as well as to make their own investment decisions. Also, based on their plan's rules, employees may frequently be given access to their retirement funds through loans and hardship withdrawals.
For Employers: 401(k) plans are popular with employers because they are less expensive than other types of retirement plans. In the case of a 401(k) plan, though an employer may elect to offer the plan's participant with an "employer contribution", typically the bulk of the contributions made to a 401(k) plan are made by the employee through employee salary reductions. If an employer sponsors a competitive retirement plan for his/her employees, it can be used as an employee benefit that helps an employer to hire and retain top-notch employees.
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What is a "qualified" retirement plan?
A retirement plan is "qualified" if it meets the rules and regulations of the Internal Revenue Service. Contributions to such a plan are generally tax-deductible for the employer and earnings on such contributions are tax-deferred while they remain in the plan. The participant in a "qualified" plan is not taxed on the contributions or the earnings until they are withdrawn from the plan.
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Should our retirement plan be individually designed or should it just be a prototype?
This decision depends on your specific needs. If you want an easily-administered plan, a prototype should be fine. However, if your organization's retirement benefit needs are more complicated, you probably will want an individually-designed document. RPA is prepared to discuss your specific needs with you to help you decide which is best for you.
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Why should we hire Retirement Planners & Administrators to provide our plan's compliance administration & recordkeeping
RPA's sole business is that of providing compliance administration and daily valuation recordkeeping to retirement plans. We do not sell mutual funds. We do not provide investment advice. Due to the nature of the potential risk of errors, staffing expenses and unnecessary exposure to plan sponsor and plan Trustee liabilities, it is typically not advisable for a retirement plan sponsor to perform its plan's compliance administration or recordkeeping functions "in-house". These complicated and finite plan support services really should be "out-sourced" to professionals. Although mutual fund sales companies and insurance companies frequently offer to provide this service, they do not specialize in this function. By hiring a professional administrator like RPA to perform these important services for your plan, you will protect your plan and its participants from costly mistakes, regulatory penalties, liability exposure and all nature of aggravations that will act as distractions and interfere with the operation of your business or non-profit organization.
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What Are The 401(k) Administration Functions?
All reporting and disclosure requirements must be satisfied by the plan administrator. The completion of the forms which must be submitted when a participant enters the 401(k) plan, the preparation of series 5500 forms, a Summary Annual Report and a statement to participants of their account balance are a few of the administrative functions of a 401(k) plan. Testing contributions, developing account balances and paying terminated participants as well as administering any possible loans and hardship withdrawals are also some 401(k) requirements.
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How do we decide when our employees should qualify for entry into our 401(k) plan?
All reporting and disclosure requirements must be satisfied by the plan administrator. The completion of the forms which must be submitted when a participant enters the 401(k) plan, the preparation of series 5500 forms, a Summary Annual Report and a statement to participants of their account balance are a few of the administrative functions of a 401(k) plan. Testing contributions, developing account balances and paying terminated participants as well as administering any possible loans and hardship withdrawals are also some 401(k) requirements.
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What is a Summary Plan Description?
A Summary Plan Description, or "SPD", is an abbreviated listing of plan provisions, including vesting rules for employer contributions, distribution rules, and grievance procedure.
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Should our 401(k) plan offer an employer match contribution?
Since an employer match can always be increased fairly easy, but could be difficult to reduce, there are many experts that advise an employer to start with no match or with a very low match. However, selecting a match depends on many considerations. Since a match can be used to motivate current and potential employees, increase employee participation in your plan, affect appreciation of the 401(k) plan and help reduce employer contributions needed to pass ADP/ACP tests, employers should carefully consider a match when establishing 401(k) plan.
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What is the difference between a 401(k) and a Profit Sharing Plan?
Technically, 401(k) plans are profit-sharing plans. However, 401(k) plans differ in several ways from the traditional profit-sharing plan. The biggest difference is that in a profit-sharing plan, only the employer makes contributions for eligible employees in the plan. Also, under a profit-sharing plan, the employer makes all of the investment decisions for the plan and the employees do not participate directly in those decisions. In a profit-sharing plan the employer's contributions, in some cases, are made whether or not the eligible employee contributes to the plan. In a 401(k) plan, eligible employees must choose to participate by making their own salary deferral contributions, which may or may not be matched by the employer at the employer's discretion.
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What about hardship withdrawals and/or loans for our retirement plan?
These options are common and can contribute substantially to the plan's success. Loan provisions, often provided to encourage employee participation and appreciation of the 401(k) plan, are more widespread than hardship distributions. The laws governing hardship distributions are complex and a violation can result in plan disqualification that has caused many employers to not want to include a hardship provision in the 401k plan despite employee pressure.
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What must every employer consider regarding 401(k) investments?
An employer should have a written investment policy in place. The employer should determine investment options that are consistent with that policy, hire investment personnel to effectuate and monitor the investments and provide information to employees regarding the 401k investments.
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How often do I need to redistribute the Summary Plan Description (SPD)?
Generally, if there have been no amendments to the plan you must provide a copy to all participants every 10 years. If amendments have been made, even if a Summary of Material Modifications was distributed, you must provide an updated copy after 5 years.
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What is a 401(k) "look-alike" plan?
As the name implies, a 401(k) "look-alike" plan works much like a conventional 401(k) plan. Rather than offering a traditional 401(k) retirement plan, some corporations offer their employees, typically their executives, a "look-alike" plan. Most "look-alike" plans are funded by the employer with a variable universal life insurance policy that insures the life of the employee. The life insurance portion of a 401(k) "look-alike" plan [the net amount at risk] can be payable to the corporation, the executive's personal beneficiary, a corporate shareholder or any combination of the three. The benefits to the employer and employee are that the insurance can be used to fund key-person coverage, personal life insurance needs, or a buy-sell arrangement. The inside buildup element of the cash value can be used to fund retirement payments to the key person, fund a disability or retirement buyout, or create cash for any other need of the corporation.
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Should we consider a 401(k) Safe Harbor?
A variation of the conventional 401(k) plan, the 401(k) Safe Harbor Plan allows plan sponsors to fundamentally "buy" their way out of the Actual Deferred Percentage (ADP) and Actual Contribution Percentage (ACP) tests. In certain cases, a "Safe Harbor" contribution also satisfies the minimum contribution requirement for plans that are or might be expected to become "top-heavy".
To take full advantage of the Safe Harbor provision of the 401(k) plan, an employer must make one of the following non-discretionary contributions to the plan each year:
EMPLOYER MATCH:
Employers must match ALL OF THE FIRST THREE PERCENT (3%) of compensation deferral into the plan, plus HALF OF THE NEXT TWO PERCENT (2%) of compensation deferral. Accordingly, the maximum potential contribution for an employee is four percent (4%) of compensation. (100% x 3% + 50% x 2%). Employers may use alternative match formulas if the total match benefit is equivalent to the "Safe Harbor" formula. The employer may not require any "hours of service" condition or employment on the last day of the plan year to receive a contribution. To insure full compliance, the employer is also required to make these contributions 100% fully vested.
To insure full compliance, the employer is also required to make either of these contributions 100% fully vested.
OR
EMPLOYER PROFIT SHARING CONTRIBUTION:
Employers must contribute at least three percent (3%) of compensation to the plan for all eligible non-highly compensated employees. The employer must make this contribution whether or not the employees have deferred compensation into the plan. Again, the employer may not require any "hours of service" condition or employment on the last day of the plan year to receive a contribution. To insure full compliance, the employer is also required to make these contributions 100% fully vested.
NOTE: As an employer, if you anticipate or if you are experiencing high levels of participation in your 401(k) plan, it may be better for your company to make an across the board three percent (3%) contribution rather than provide a minimum employer match as shown above. Using the flat three- percent (3%) contribution additionally serves the dual purpose of providing a minimum top-heavy contribution for Top Heavy plans.
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What Is A 403(b) Plan?
The 403(b) is a tax deferred retirement plan available to employees of educational institutions and certain non-profit organizations. Participants contribute to either annuity contracts with insurance companies, or invest in mutual funds. Contributions and investment earnings grow tax deferred until withdrawal (assumed to be retirement), at which time they are taxed as ordinary income.
Click Here To Review A Detailed Summary of 403(b) Plans.
The name 403(b) refers to the relevant section in the Internal Revenue Code. You can obtain a copy of the IRS Publication 571, which discusses the 403(b) plan in detail by calling 1-800-829-3676 or it may be downloaded by clicking on IRS Publications and scrolling to Publication 571 Tax Sheltered Annuity Programs.
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What Is a 457(b) Plan?
Named after IRS code 457, a 457(b) plan is a non-qualified deferred compensation plan for states, counties, cities, agencies, and their political subdivisions or agencies. Deferred compensation is a contractual agreement between an organization and an employee wherein the organization makes an unsecured promise to defer the compensation of the employee to some future date for services currently performed by the employee. Annual contributions are made through salary deduction up to $13,000 or 33 1/3% of salary, whichever is less. Distributions are made upon retirement, termination of employment, extreme financial hardship or at death to the name beneficiaries.
One nice benefit of the 457 plan is that in the last three years before the plan's normal retirement age, a participant can "catch up" on contributions missed in earlier years, as long as the total for each of the three years does not exceed $16,000.
Upon retirement, participating employees have various options for withdrawing funds. They can take out a lump sum, purchase an annuity or simply start drawing out money on a periodic basis from their current account. Unlike most other retirement plans, withdrawals may be taken from a deferred compensation account upon separation from service without incurring the 10% penalty for early distributions, even prior to age 59.
Click Here To Review A Detailed Summary Of 457b Plan.
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What is a Money Purchase Plan?
If your business is consistently profitable and you are an employer who wants to reward key employees with a generous retirement benefit; or if you are self employed individuals who would like to tax-shelter as much income as possible, then you should seriously consider sponsoring a Money Purchase Pension Plan.
Unlike a Profit Sharing Plan where employer contributions are optional, under a Money Purchase Pension Plan, employer contributions are mandatory and the employer contributes a fixed amount or a fixed percentage of compensation on an annual basis. Changing the contribution requires a plan amendment that the IRS will only allow if the change is infrequent. The "up side" is that such plans, funded solely by the employer, permit higher total contributions to as much as 25% of compensation.
Similar to profit sharing plans, money purchase pension plans may allow the exclusion of some employees by using eligibility criteria and give the employer a greater degree of control in determining when employees are vested.
Click Here To Review A Detailed Summary Of Money Purchase Plan.
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