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What is a Qualified Retirement Plan?

It is a plan maintained by an employer and/or employee organization that provides a nest egg for its employees through company contributions or deferral of income by employees. To be ‘Qualified’ the plan is given special tax treatment for meeting the many requirements of the IRS. There are two categories of Qualified Requirement Plans:

Whether you are sole Proprietor, partnership or Corporation there are many different types of plans that can meet your needs. These may include the following different types of Defined Contribution Plans:

Why do you need a Retirement Plan?

  • For both the employee and employer it’s the best tax shelter around! You are making the most of your income.
  • The employer will see improved employee satisfaction! Retirement plans are attractive to new hires, help to retain present staff and improve job satisfaction.
  • You are planning for your future, ensuring a nest egg will be waiting for you when you retire.

Types Of Retirement Plans

A Defined Benefit Plan provides a definitely determinable annual benefit: that is, the benefits are determined on the basis of a formula contained in the plan. A specified Benefit is paid at retirement age. These plans usually favor older employees and are designed to provide more retirement security than do defined contribution plans.

Defined Contribution Plan

A Defined Contribution Plan provides benefits based on the amount contributed to an employees account, plus any earnings and forfeitures of other employees that are allocated to the account. Since the participant bears the investment risk in this type of plan, the benefit paid upon retirement is not guaranteed.

Whether you own a sole proprietorship, partnership or corporation there are many different plans that can meet your needs. These include integrated, nonintegrated, age-weighted or cross tested Profit Sharing, Money Purchase, 401(k), Cash Balance or Target Benefit.


When a plan is integrated, it is designed to consider employer FICA contributions or the benefits provided under Social Security, resulting in increased benefits for higher paid employees. Nonintegrated plans do not consider the benefits provided under Social Security.

Age Weighted

An age weighted Profit Sharing Plan uses both age and compensation as a basis for allocation of employer contributions among plan participants. This plan favors more mature employees who have less time to build sufficient funds than younger employees.

Cross Tested or New Comparability.
A cross tested plan allocates different contribution amounts to different groups of participants, taking into consideration the age and the resulting benefit at retirement age. This plan favors older employees with higher levels of compensation.

Profit Sharing

Profit Sharing Plans enable companies to decide on the amount of share in the employers’ profits.It is at the employers’ discretion how much to contribute annually to the plan and specific formulas are in place within the plan to allocate the contribution to participants. This plan offers the flexibility needed by some employers.

Money Purchase

Money Purchase Plans are very similar to profit sharing plans.The major difference is that with a money purchase plan, the employer is committed to contributing to the plan a certain percentage of the participants’ pay each year. This contribution formula is specified within the plan. An advantage of this type of plan is that it allows greater contributions than does a profit sharing plan.

Target Benefit

Target Benefit Plans are a cross between a Defined Contribution Plan and a Defined Benefit Plan. While it is actually a Defined Contribution Plan, it contains a benefit formula used for determining annual contribution.


401(k) Plans are Qualified Profit Sharing plans that offer participants an opportunity to contribute part of their salary into a retirement plan. With the employee electing to defer part of their compensation, the money is contributed to a 401(k) profit sharing plan instead of being paid as taxable compensation, thus reducing the current taxable income of the employee.

A Safe Harbor 401(k) Plan is a 401(k) Plan that has a required employer contribution which is known as the Safe Harbor contribution. The required contribution may be in the form of a Match or Profit Sharing and is 100% vested immediately. By making a Safe Harbor contribution, a plan will automatically pass the 401(k) or Match discrimination test. This allows the highly paid employees and owners to make 401(k) contributions up to the IRS limit.

403(B) FAQ

403(b) plan is a deferred compensation program that is offered to employees of a tax-exempt organization or employees of certain educational organizations. Contributions must be made to annuity contracts or to custodial accounts investing in mutual funds. Because section 403(b) plans originally had to be invested only in annuity contracts, these plans are sometimes referred to as "tax-sheltered annuity" plans. A reference to a tax-sheltered annuity or "TSA" is generally recognized as not only a reference to a 403(b) annuity, but also as a reference to a 403(b) custodial account or 403(b) retirement income account.

Cash Balance FAQ

A Cash Balance plan is a reference to a defined benefit plan that describes a participant's accrued benefit as a hypothetical account balance or a single-sum amount. The term "cash balance" is to distinguish this type of defined benefit plan from what is known as a "traditional" defined benefit plan. A traditional defined benefit plan expresses the pension as a periodic payment (usually an annuity) commencing at a "normal retirement date," which is a specified percentage of compensation (usually average compensation) or a specified dollar amount.


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