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Plan Insight

NOVEMBER 2010 Newsletter

What’s the Difference?

401(k) and Profit-Sharing Plans

• Participant's retirement benefits based on participant’s account balance

• May allow employees to contribute through salary deferrals

• Depending on the type of plan, employer may be required to make annual minimum contributions

• Contribution limits of up to $49,001 or more if catch-up contributions

• Must meet minimum coverage tests but can exclude some employees

• More complex to set up and operate

• Annual return usually required

• May require annual nondiscrimination testing

• Greater design flexibility

• Loans and hardship withdrawals allowed

• May delay vesting of some employer contributions

Defined Benefit Plan

• Participant's annual retirement benefit determined by the plan's benefit formula

• Higher annual retirement benefits possible, up to $195,001 per year

• Actuary required to determine employer's annual contributions

• Must meet minimum coverage tests but can exclude some employees

• Most complex to set up and operate

• Annual return required

• Annual nondiscrimination testing required

• Greater design flexibility

• Plan may allow loans

• May delay vesting of participants' accrued benefit

The tax code does not place limits on the number of plans a company may sponsor. For many small businesses it may make sense to sponsor both types of plans in order to maximize retirement savings.

Defined Benefit Pension plans have traditionally formed the backbone of our retirement plan system. They offer guaranteed retirement benefits with limited risk to employees, making them an ideal way to help your employees build a secure future. In recent years, defined benefit plans have proved a useful small business tool in helping high net worth individuals achieve their strategic retirement goals as well.

Executive Benefit Plans, Inc. offers a full array of fund options for Defined Contribution and Defined Benefit plans through our contractual relationships with leading financial institutions. Spanning the risk/return spectrum, your retirement program is designed to appeal to the needs of every type of plan participant, providing choices in every major asset category.

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Information is provided for review and consideration only. Please consult legal and tax advisors for practical advice pertaining to your business and personal situations.

Material in our newsletter may have been extracted in whole or in part from the IRS Employee Plans publication, and the presence of IRS material does not constitute or imply the endorsement, recommendation, or favoring by the IRS of any opinions, products, or services offered by the sponsor of this web page or document.

This page was last reviewed and/or updated on Friday, July 03, 2015 05:21 PM


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