Free Pension Guide For Clients and Friends

We’ve put this page together to provide some free resources for you to learn everything about the world of pension planning! This original text was written nearly 20 years ago, when the entire pension industry was in its infancy. We like to think of ourselves as pioneers, early to the world of pension planning, and this text proves it.

Let’s get started!

Step 1: Your Business Retirement Plan Needs

A business retirement plan is one of the best tax shelters and a competitive hiring tool that offers employees a long-term perk of working at your company.

A well-designed retirement plan is one of the most requested employee benefits and one that will help you attract and retain top people. At the same time, a retirement plan can provide you, as the employer, with tax benefits that enable you to make the most of your business’s assets.

Picking the right plan for your business depends on many factors: your goals for establishing a plan, the size of the annual plan contributions you can comfortably commit to, and a wide range of specific issues related to your company. That’s where we come in! Want to get started? Email us:

Step 2: Understanding The Basics

Qualified Plans allow employees to become Participants after completing one year of service. This is the basics of getting started – you need an eligible employees who have worked at your company! Once you have that, your plan design becomes a lot more interesting and fun.

Once you have a perfect understanding of your company, including your employees, and the basics of your businesses finances, we can then move forward with finding the right pension plan for your company and all its eligible participants.

Step 3: Picking The Perfect Plan

There are are all kinds of different plans an employer can offer its employees. In this section, we’ll walk through some of the most popular plans and the basics of each plan. Remember, plans are a lot more complicated than this and despite what any new tech platform will tell you, you need an expert third-party administer to walk you through each key detail. And once again, that’s where we come in!

401(k) Plans: A 401(k) Plan allows employees to contribute a portion of their own incomes toward their retirement. The employee contributions, not to exceed specific limits, reduce a participant’s pay before income taxes, so that pre-tax dollars are invested. Employers may offer to match a certain percentage of the employees’ contribution, increasing participation in the plan. Throughout the business world, 401(k) plans are slowly becoming one of the more popular choices.

Profit-Sharing Plans: Profit-Sharing Plans are well suited for businesses with fluctuating profits or those who want give employees a better way to share the company’s income. In addition to the flexibility in deciding the amounts of the contributions, a Profit-Sharing Plan can include options such as service requirements, vesting schedules, and plan loans that are not available under Simplified Employee Pension IRAs. Contributions may range from 0% to 25% of eligible employees compensation. The maximum contribution ranges each year (upwards of $60,000 today!) and we can help you better understand how these numbers change when you call. Generally, a Trustee is named to direct the investment of the Plan assets, though participants can be allowed to invest their own account.

Age Weighted Profit-Sharing Plans: These plans are similar to the Target Benefit Plans described above, except that the contribution is discretionary, rather than mandatory. In some circumstances, a better allocation can be achieved under these plans, because Target Benefits are based on a three year average of compensation, while the age weighted profit-sharing plans is based on current compensation.

Defined-Benefit Plans: In contrast to the previously described plans, defined benefit plans are designed to provide a desired retirement benefit for each participant. This type of plan can allow for a rapid accumulation of assets over a short period of time. The required contribution is actuarially determined each year, based on factors such as age, years of employment, the desired retirement benefit, and the value of plan assets. Contributions are generally required each year and can vary widely.

NOTE: If you’re a one person company, you may consider adopting what some are calling a “Uni-K”. It is simply a one person 401(k) Plan.

Step 4: Eligibility and Participation

You can require an employee to complete either one or two years of service before becoming a participant in the company plan. A Year of Service is a year in which an employee completes at least 1000 hours of service. The year is measured from an employee’s date of hire to the anniversary of that date. If the requirement is one year, you may use a vesting schedule. If two years, the employee must be 100% vested upon becoming a participant. You may also require that an employee be at least age 21 before becoming a Participant.

Participation begins on an Entry Date. The Entry Date is usually the first day of the Plan Year, or the first day and the first day of the seventh month following completion of the requirements. With one Entry Date, an employee should become a Participant on the Entry Date nearest completion of the eligibility requirements. With two, on the Entry Date following their completion.

Step 5: We’ll Test Your Plan!

At Pensionalysis, we strive to help you better understand your plan. We design it so that it is effective and compliant. One key thing we assist you with is testing! This means we run calculations on your plan to double and triple check that your plan is following specific guidelines.

For example, a Participant is someone who benefits (receives an allocation of contributions or forfeitures, or accrues a benefit) during a Plan Year. The general rule is that at least 70% of lower paid employees must benefit during the plan year, if all highly compensated employees benefit.

If, say, half the highly compensated benefit, 70% of that 50%, or 35% of lower paid employees, must benefit. These rules usually come into play as a result of a design feature of the plan that states that an employee must complete a certain number of hours (1000) and/or be employed at the end of the Plan Year to receive an accrual or contribution.

In performing the above percentage test, all employees who either were participants employed at year end regardless of hours, or worked more than 500 hours before termination of employment must be counted.

Step 6: Pension Plan Legal Frameworks

It’s important to understand the specifics that govern pension plans ranging from what’s allowed in terms of contributions and deferrals to picking a plan that follows every guideline perfectly.

This is probably the next most important part of our entire lesson! Let’s look at some additional topics that often come up and ensure you’re both taking advantage of the tools you have as a business while also following necessary mandates:

Integration Retirement: Plans are allowed, to a limited extent, to skew contributions or benefits in favor of the more highly compensated employees. The IRS allows this because Social Security Benefits are only based on compensation below the Taxable Wage Base.

Participant Loans: Participants can be allowed to borrow for any purpose under all the above plans. There are various rules regarding interest rates, repayment schedules and loan limits. Some loan specifics.

Vesting: Vesting is used as a tool to retain employees. Generally, an employee must become fully vested after seven years of employment. Depending on benefits and eligibility requirements, the period an employee must vest may be shortened.

Step 7: Final Remarks

Thanks so much for reading our guide!

We hope you enjoyed it and learned something new. We live and breathe the pension world, so it feels good to share this knowledge with anyone interested.

If you want to talk to our experts and get started, send us a message: