FAQ
Retirement Plan FAQs (frequently asked questions)
What type of plan should I have? What’s in it for me as owner/employer? What is reasonable to provide my employees?
1. The most common plan type sponsored today is a 401(k) profit-sharing plan, whereby money is contributed in up to three ways, namely elective employee deferrals, pre-tax or post-tax Roth deferrals, up to 100% of wages or $16,500/yr., whichever is less, employer matching contributions, and discretionary profit-sharing non-elective contributions. The maximum a participant can receive annually from all sources is limited to $49,000, in 2011, and an extra $5,500 deferral catch-up for participants age 50 or more in 2011, to total $54,000.
2. As owner/employer, you must decide if the plan is an altruistic program for your common law employees only, or if it is equally important that you receive significant deductible contribution benefits as well. If altruistic, most employers opt for a matching formula, depending on the company budget, so that employees receive benefits contingent on their participation as well. Conversely, if you, as owner, are interested in maximum contributions, a different plan design approach is necessary. We can show you (at no cost) what your options are based on your own census data.
3. Reasonable contributions made for employees is a matter of public debate, in addition to private budgetary resources. Many companies struggle with exponential healthcare increases and as a result, allocations of the benefit dollar to retirement plans often suffer. At a minimum, a 4% safe harbor match, or 3% safe harbor non-elective profit-sharing contribution can accomplish a great deal for all constituents. Alternatively, an automatic enrollment feature supplemented with qualified automatic matching at 1% on the first 1% of wages, and 50% on the next 5% of wages (maximum cost of 3.50%) can accomplish similar results. Each of these safe harbors eliminates deferral testing for highly compensated employees (greater than 5% owners or wages in excess of $110,000/yr) so that as an owner, you can receive a reasonable contribution, even if just your deferral and match, if not the maximum of $49,000.
Should I hire a broker to shop my plan or an independent investment adviser who accepts fiduciary status along with me?
1. Brokers can provide valuable help in selecting a plan provider, however, many do not specialize in retirement plans and rely solely on the assistance of the vendor wholesaler selling his own product. Make sure your broker has at least 40-50% of his business in retirement plans to get the best value. One common trick by brokers is take discretionary control of plan assets by steering your plan to a provider with more lucrative compensation to the broker. It is not uncommon to learn later that the broker was paid 1% commission on the assets transferring and an asset based trail fee of 0.25% to 0.75% of plan assets.
2. In contrast, an advisor who acknowledges fiduciary status in writing pursuant to an ERISA Section 408(b)(2) compliant services agreement adds a greater dimension of confidence and peace of mind in the sense that you have a third party who is accountable and liable for the services provided as fiduciary. The fees are independent of the provider selected, fully disclosed, and all costs are transparent to the plan sponsor.
For more information, please contact Greg.Rhinehardt@gamria.com
