2-10 Employee Plans

A defined benefit plan (“DB” plan) is a form of a qualified retirement plan under Section 401 of the Internal Revenue Code.  The other type of Section 401 plan is a Defined Contribution Plan.  With a DB Plan, the only contributions made are those by your employer.

A Cash balance plan is a relatively new variety of a Defined Benefit.  It is subject to the same reporting, documentation and Actuarial certification requirements of a defined benefit plan. The benefit, however, is expressed  in terms that are more characteristic of a defined contribution plan. In other words, a cash balance plan defines the promised benefit in terms of a stated account balance rather than an annual benefit.

Named after section 401(k) of the Internal Revenue Code, a 401(k) is an employer-sponsored retirement plan. To contribute to a 401(k), you designate a portion of each pay check to divert into the plan.

With a traditional 401(k) salary deferrals, these contributions occur before income taxes are deducted from your pay check. While, ROTH 401(k) deferrals are deducted after income taxes are deducted from your pay check.

With this type of DC plan, contributions from the employer are discretionary. That means the company can decide from year to year how much to contribute—or whether to contribute at all—to an employee’s plan. If the company does not make a profit, it does not have to make contributions to the plan. (But a company does not need to be profitable to have a profit-sharing plan.)

This flexibility makes it a great retirement plan option for small businesses or businesses of any size. Plus, it aligns the financial well-being of employees to the company’s success.

A 403(b) plan (written variously as a 403b or 403 b plan) is a retirement account for certain employees of public schools and tax-exempt organizations. Participants include teachers, school administrators, professors, government employees, nurses, doctors, and librarians.

457 plans feature a double limit catch-up provision that 401(k) plans do not have. This provision is designed to allow participants who are nearing retirement to compensate for years in which they did not contribute to the plan but were eligible to do so.

Under the right conditions, a 457 plan participant may be able to contribute as much as $38,000 to his or her plan in one year in 2019—and $39,000 in 2020.

A non-qualified, deferred compensation (NQDC) plan allows you to earn wages, bonuses, or other compensation in one year but receive the earnings—and defer the income tax on them—in a later year, or when you retire. Doing this provides income in the future (often after you’ve retired) and may reduce the tax payable on the income.

Think about a brighter future with your retirement in place.

When divorce is on the cards, your spouse may be entitled to a portion of your pension plan.  If that’s the case you’ll need a Qualified domestic Relations Order (QDRO). A QDRO is a judgement, decree or order for a retirement plan to pay child support, alimony or marital property rights to a spouse, former spouse, child or other dependent of a participant.

Hopefully you’ll never need help with this, but if you do, we’re here to support you.

When a QDRO Order is in place, it’s vital to get a valuation of the retirement plan and ensure that the valuation date is recorded properly. Whatever the valuation of the pension on the valuation date will determine what the plan was valued at up to, and including that date and the proceeds will be distributed accordingly. This ensures that any funds added after that date are not distributed to your spouse – if that is what the order demands.