Retirement plans can be designed to meet a broad range of savings and tax goals. The key is to be an expert partner and design a plan that can best accomplish what each client needs rather than sell a one-size-fits-all solution. At Latitude, we’re experts at listening, analyzing your business and personal objectives to design a plan that has the potential to optimize each of these goals.
We can help you start a new plan or update and enhance the provisions of an existing plan to help optimize its performance for you.
Defined Contribution
403(b) Plans are similar to 401(k) Plans but are governed by Section 403(b) of the Internal Revenue Code. These plans may be adopted only by certain eligible employers, including 501(c)(3) organizations, educational organizations and states (including political subdivisions or state agencies).
457(b) Plans may be maintained by a governmental employer (i.e., a state, a political subdivision of a state or any agency or instrumentality of a state or political subdivision of a state). Rollovers are permitted to or from governmental section 457(b) Plans.
A Cafeteria Plan (includes Premium Only Plans and Flexible Spending Accounts) is an employee benefits program designed to take advantage of Section 125 of the Internal Revenue Code. A Cafeteria Plan allows employees to pay certain qualified expenses, such as health insurance premiums dependent care expenses or medical expenses, on a pre-tax basis, thereby reducing their total taxable income and increasing their spendable, take-home income.
A Profit Sharing Plan is a type of Defined Contribution Plan that is not a Pension Plan. The employer’s contribution to a Profit Sharing Plan is not required to be fixed, nor does it need to be tied to profits. While a plan may have a definite contribution formula, many plans use a discretionary formula under which the employer determines each year how much to contribute.
A Cross-Tested or Age-Based Plan is an employer-sponsored Profit Sharing Plan that favors older, long-term employees, who, by age, are closer to retirement. Unlike traditional Profit Sharing Plans, which may provide a flat dollar amount or a flat percentage formula for each participant, the participant’s age, service and compensation are taken into account when determining the allocation of these contributions.
A Money Purchase Plan is a type of Pension Plan. It is a Defined Contribution Plan that must provide a fixed-contribution formula (i.e., the contributions can not be discretionary). The benefits from a Money Purchase Plan must be paid as a joint and survivor annuity unless the participant (and the participant’s spouse) waives this right.
An ESOP (Employee Stock Ownership Plan) is a Defined Contribution Plan and may be a Stock Bonus Plan or a Stock Bonus Plan and Money Purchase Plan. The distinguishing feature of an ESOP is that it must be designed to invest primarily in employer securities. In addition to many of the typical Defined Contribution Plan rules, an ESOP must satisfy certain diversification rules, distribution restrictions, allocation restrictions and voting-rights requirements.
A KSOP combines an employee’s stock ownership plan (ESOP) with a 401(k) Plan.
Defined Benefit
A Defined Benefit Plan is a Pension Plan that does not maintain account balances to reflect the accrued benefits of the plan participants. As a Pension Plan, a Defined Benefit Plan must define the benefit formula and how benefits are accrued under that formula. The benefits are stated as an annuity payable to the participant beginning at retirement age.
A Cash Balance Plan is a unique type of 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 used to distinguish this type of Defined Benefit Plan from a “traditional” Defined Benefit Plan (see description above).
In general, only older employees will actually receive a benefit from the Defined Benefit Plan since the benefits of the younger participants are fully offset. This type of arrangement is useful in situations where the principal owner(s) of the business is older than the staff and the company wants to maintain a Defined Contribution Plan for the staff.
Hybrid
Hybrid Plans combine features of both Defined Benefit and Defined Contribution Plans. Factors that your organization may consider in the decision to implement a hybrid retirement plan include employee understanding and appreciation, changing work force demographics, changing economics, changing regulatory and legislative rules.
An Age-Weighted profit sharing plan permits employers to make contribution allocations on the basis of age as well as salary. Using a simple age-weighted formula, it is possible for an older employee to receive many more times the contribution of a younger employee. Additionally, Instead of strictly age-weighting a plan, an employer may find it more desirable to reward the longer-service employees by weighting contributions by service, or a combination of age and service, rather than just age.
This plan design allows an employer to adopt a formula that provides higher allocations to certain employees based on a “class or group”. The employer decides which groups get which allocations. The allocation formulas adopted by the plan for the various groups must pass the required discrimination testing mandated by the IRS.
A benefit plan that is similar to a Defined Benefit Plan since contributions are based on projected retirement benefits. However, unlike a Defined Benefit Plan, the benefits provided to participants at retirement are based on the performance of the investments, and are therefore not guaranteed.