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This chapter begins with a quick overview of money purchase plans, and then briefly discusses when an employer might use such a plan. Following coverage of advantages and disadvantages, the chapter discusses money purchase plan design features. Tax implications and a few alternatives are then discussed. | What Is It? A qualified retirement plan where: each employee has an individual account employer contributes to employee account plan benefits are result of employer contributions, interest or other investment return and capital gains employee account balance may be paid out as an annuity equivalent in value to account balance Copyright 2009, The National Underwriter Company When is it Indicated? 1. employer wants a qualified plan that is simple to administer and explain to employees 2. relatively young employees with time to accumulate $ 3. employees willing to accept investment risk 4. some retirement income security desired 5. employer wants to reward long-term employees Copyright 2009, The National Underwriter Company Advantages tax deferred savings plan simple and inexpensive to design, administer, explain to employees plan formula typically allows up to 25% employee compensation, with contribution not exceeding $49,000 (2009, indexed) certain lump sum distributions may qualify for 10-year averaging participants benefit from good investment results Copyright 2009, The National Underwriter Company Disadvantages retirement benefits may be inadequate for older plan entrants; disparity between short and long term employees reduced somewhat by salary increases annual addition to each employee account limited to lesser of $49,000 (2009, indexed) 0R 100% compensation $245,000 cap on compensation employees bear investment risk employer must make plan contributions each year or face minimum funding penalties Copyright 2009, The National Underwriter Company Design Features benefit formulas flat % of employee compensation – up to 15% (typical) service-related factors favors older, higher compensated may lead to prohibited discrimination in closely held or professional corporations Copyright 2009, The National Underwriter Company Design Features only first $245,000 of employee’s compensation can be considered in the plan formula to avoid discrimination | What Is It? A qualified retirement plan where: each employee has an individual account employer contributes to employee account plan benefits are result of employer contributions, interest or other investment return and capital gains employee account balance may be paid out as an annuity equivalent in value to account balance Copyright 2009, The National Underwriter Company When is it Indicated? 1. employer wants a qualified plan that is simple to administer and explain to employees 2. relatively young employees with time to accumulate $ 3. employees willing to accept investment risk 4. some retirement income security desired 5. employer wants to reward long-term employees Copyright 2009, The National Underwriter Company Advantages tax deferred savings plan simple and inexpensive to design, administer, explain to employees plan formula typically allows up to 25% employee compensation, with contribution not exceeding $49,000 (2009, indexed) certain lump sum distributions may .
