Defined Contribution Plans: 401(k), Profit Sharing, 403(b), Safe Harbor, Cross-Tested
Available from Madison Pension Services, Inc.
One of the most popular types of pension plans today is the 401(k) PLAN. More and more plan sponsors are recognizing the role 401(k) plans can play in meeting employees’ retirement needs. A 401(k) plan is a type of Defined Contribution Retirement Plan that enables employees to make contributions to the plan before taxes.
PROFIT SHARING PLANS enable an Employer to make a contribution to the plan in order to reward employees for their efforts. The employer can exercise discretion over the amount contributed to the plan each year and need not base the contribution on actual profits. The employer may also decide in a certain year not to make an employer profit sharing contribution.
A 403(b) PLAN, also referred to as a “tax sheltered annuity plan”, is a type of Defined Contribution Pension Plan available only to employees of public schools and charitable organizations (non-exempt organizations), which enables such employees to make contributions to the plan before taxes.
A 401(k) SAFE HARBOR PLAN is similar to the traditional 401(k) plan but the employer is required to make a fully vested contribution to each employee. In return for this mandatory contribution, the company gets a free pass on a discrimination test called the ADP.
A CROSS-TESTED NEW COMPARABILITY PLAN is a type of profit sharing plan which allows the Employer to maximize the benefit of highly compensated employees while having the plan remain in compliance with IRS regulations.