Setting up a plan requires that the the plan be designed to suit the client’s needs. There are many aspects that must be taken into consideration. Below are a few basic plan features that are typical when designing a plan.
Once the plan is designed and in place the plan document must be kept in compliance with the IRS code that governs pension plans. The rules change and when they do a pension’s document must be updated to comply. Along with performing an annual administration on behalf of the plan the document too must be maintainted.
Plan Types
PATA administers basically 2 types of plans, defined contribution plans and defined benefit plans. Defined contribution plans are 401(k) plans and profit sharing plans, relatively easy to maintain . A defined benefit plan is a plan that enables the plan sponsor to make very large contributions. The DB plan is more involved and as a result it is more expensive to maintain.
Eligibility
When a plan is designed , in most cases the employees must satisfy certain eligibility requirements in order to participate in the plan. Requirements like age and service. The typical age and service requirement is age 21 and 1 year of service.
Contribution Types
Plans can be designed to allow employee salary deferral contributions (401(k) contributions) in addition to a discretionary employer contribution. For many small plans a Safe Harbor contribution may need to be included so that the plan will pass certain non discrimination tests.
Vesting
Vesting applies to employer contributed contributions. Of course any employee contributions are automatically 100% vested. Plans impose a vesting schedule to force a participant to earn their employer contributed contributions. For each year an employee stays with the company they earn another year of service towards vesting.
Distributions
The IRS requires that all plan distributions be reported to the Department of the Treasury using a form 1099-R. Distributions that are taken in cash must have Federal income taxes withheld. Rollover distributions to an IRA or another qualified retirement plan do not have to pay withholding taxes. It is important that all plan withdrawals are accounted for to ensure that this requirement is not overlooked.
Miscellanous
Some plans permit participant personal loans and even in-service distributions. These types of actions must be documented. Company mergers, participant divorces, these far and few between occurrences may result in additional work.
Know the plan you are interested in?
Traditional 401(k)
If you are a business that has employees, the traditional 401(k) is for you.
Solo 401(k) &
Simple 401(k)
Both the Solo and Simple 401(k)s are geared towards the business that wants to have a plan but is not ready for or needs to have a traditional 401(k).
learn more – Solo
learn more – Simple
Defined Benefit
A Solo 401(k) is a good plan for what the IRS calls a single member business. This business only employs the owner(s) and their spouses.