A discussion of how to rapidly accelerate your contributions and significantly reduce your tax liability via a retirement plan designed for your specific personal and corporate objectives.
Read slide then point out… With a Defined Contribution Plan the contribution made each year is subject to an annual contribution limit. The Plan currently satisfied IRS discrimination rules by providing the same contribution rate / percentage to all employees. For 2010, the maximum contribution that can be allocated to the account of any participant in a Defined Contribution Plan is $45,000 ($50,000 if over the age of 50.)
Talking Points: Read slide …
Cash Balance: (differs because the annual contribution has a guaranteed interest rate for accrual proposes) This should be stated by the speaker after reading paragraph 1. This plan in contrast pools the plan funds, participants annual statements reflect accrued benefits and the employers bear the investment risk Next state this: These plans provide employers with the potential for much higher contribution levels than defined contribution plans. The employer contribution is determined each year as the amount needed to fund the benefits provided by the plan. The employer contributions will change to reflect changes in compensation, changes in plan participation and earnings on plan assets. (these plans can potentially be over or under funded) These plans maximize the contributions to older employees.
With a Defined Benefit Plan the benefit provided at retirement is subject to a benefit limit. ($195,000 for 2010) For this reason Defined Benefit Plans are often considered to favor older employees. A much higher contribution can be allocated for the benefit of a participant in the Defined Benefit Plan and is mandatory funding each year giving employers little or no flexibility A combination of Defined Benefit and Defined Contribution Plans can achieve the following objectives: A higher total contribution amount in both plans for owners. Flexibility to design classes of participants that will receive benefits at different levels. A smaller allocable share of costs for employees. The continued opportunity for participants to regulate their contributions by their elective deferral and catch up contributions. --------------------- Read the slide. Specifically focus on what the combo DB/DC plan can “achieve” A higher total contribution amount in both plans for owners. Flexibility to design classes of participants that will receive benefits at different levels. A smaller allocable share of costs for employees. The continued opportunity for participants to regulate their contributions by their elective deferral and catch up contributions.
Small Company Plan Benefits Contribution limits can be much higher than a defined contribution plan Benefit formula for owners can be substantially higher than for non-owners providing non-discrimination testing is satisfied Maximize discrimination and dollars by pairing with a 401(k) profit sharing plan. Key Factors of a Cash Balance Plan Contributions are credited to “hypothetical account” for each participant each year Participants can view hypothetical account balances like a DC plan Contributions must be fully vested after 3 years Plan assets are pooled and invested together Guaranteed interest rate is credited at set interval, i.e. quarterly, annually, etc.
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