Retirement Plans for Business

Which is Right for You and Your Employees?

As a business owner this is one of the most important decisions you will make that will impact both your future wealth and that of your employees, There are several retirement savings vehicles now available to businesses—as small as one person—to as large as thousands of employees. There are nuances of each retirement savings vehicle that may make one the best fit for your needs. The information provided are general guidelines, but be sure to consult with your Lions Bridge Financial advisor and your tax advisor to ensure you pick the plan that best suits your goals and company.

As important as your plan type, your plan offerings/platform is the service your company receives on your plan. It’s key to help employees stay

Call or email Lions Bridge Financial for a COMPLIMENTARY PLAN REVIEW and learn more about how we can improve your company 401(k) plan offerings, education and plan service:  Jayne@LionsBridgeFinancial.com or (877)599-9111.

IRAs (INDIVIDUAL RETIREMENT ACCOUNT)

An IRA, or Individual Retirement Account, is a blanket term for a retirement plan that provides tax advantages for retirement savings.
An IRA can be an Individual Retirement Account or an Individual Retirement Annuity.
An Individual Retirement Account permits individuals to set aside money each year, with earnings tax-deferred until withdrawals begin after age 59 ½ -- to avoid the 10% penalty).  Withdrawals are not required from TRADITIONAL IRAs until age 70 ½ years, this is called the “required minimum distribution”.  A big benefit of  ROTH IRAs is they do not require a withdrawal at 70 ½.  The exact amount of the withdrawal depends on the year and your age.
Here are some other definitions of Individual Retirement Accounts that we hope you find helpful:

SIMPLE IRA.  The Savings Incentive Match Plan for Employees (SIMPLE) IRA is for businesses with 100 or fewer employees. The employer must make matching contributions on behalf of eligible participants.  Because employers must contribute a set amount each year, this plan is best suited to businesses with consistent earnings. Employees may defer as much as $11,500 in 2011 to a SIMPLE plan, and those who are age 50 or older may contribute an additional $2,500.

SEP IRA. The Simplified Employee Pension (SEP) is funded solely by the employer. Employees are fully vested in the plan from the time they join. Business owners can vary contributions to a SEP from year to year or make none at all. This makes the SEP a good choice for businesses in a less stable financial position. Contributions can be set at a maximum of 25 percent of an employee’s compensation or as much as $49,000 in 2011.

 401(k) Plans.  Established by an employer (as small as one employee to as large as thousands), and an important benefit and more often than not, the most important savings vehicle for retirees.  401(k) retirement plans allow employees to contribute a specified percentage of their pre-tax wages into a tax-deferred account to save and invest for retirement.   Some companies match their employees’ contributions or make profit sharing contributions.

Cash Balance Plans.

The most common 401(k) plans are called traditional 401(k)s.  Another 401(k) plan type that gives employers more options is the Safe Harbor 401(k) plan.
 The Safe Harbor 401(k) offers the same benefits as the traditional 401(k), but provides employers more options when they match their employees’ contributions: Companies can make contributions for each eligible employee (even if the employee does not contribute) of 3% of annual compensation, or the company can match 100 percent of the first 3 percent of employees’ deferred contributions, plus 50 percent of the next 2 percent of employees’ contributions. While the mandatory employee match is larger with a Safe Harbor 401(k), may permit employers to make more pre-tax contributions on their own behalf.

Profit Sharing

Profit-sharing plans are relatively easy to administer and tend to be popular with small businesses. The plans are funded solely by the employer on a pre-tax basis, and contributions are discretionary. Many employers require workers to remain with the company for a set number of years before they become fully vested in the plan. With profit-sharing plans, the employer and employees can take out loans against the value of the funds in the account.

ROTH 401(k)
A Roth 401(k) is a relatively new option that some employers offer along with a traditional 401(k). It's basically the opposite of a traditional 401(k) plan - meaning you pay the taxes on your contributions, but not your withdrawals. So while you do have to fund it with after-tax dollars, the money grows tax free and you won't have to pay income tax on any money you take out.
What's more, you don't have to make required minimum withdrawals (RMDs) from a Roth 401(k) after you turn 70 ½, as you do with a traditional 401(k). You can leave your money to grow tax-free for decades after you reach retirement. The lack of RMDs makes Roth 401(k)s handy estate-planning tools for some families.
If your employer offers both types of plans, you can divide your savings among them - they will have the same investment options - but your combined annual contributions cannot exceed $16,500 in 2010 ($22,000 for people 50 or older).

Defined Benefit Plans
With the rise in popularity of 401(k) plans, Defined Benefit Plans are becoming less common, but they can still be a good option, particularly for business owners with few employees who want to accelerate their personal savings. Using a Defined Benefit Plan, business owners may be able to set aside significantly more than they could otherwise. In 2011, the maximum annual benefit is $195,000, and the amount of yearly compensation that may be considered for benefit purposes is $245,000. The disadvantages of these plans are that they can be more complex and costly to administer than other options and that they usually are more expensive to fund than other plans.
Defined Benefit Plans are retirement plans provided and funded solely by the employer who establishes the plan and determines how it’s invested. These plans promise participants a set payout at retirement based on salary and length of employment.
There are two basic kinds of defined benefit plans: pensions and cash-balance plans. These plans are a great deal for participants. Generally the employee just needs to meet basic eligibility rules and is automatically enrolled in the plan. (In some instances, however, participants aren't enrolled until they have completed a year of employment.) Typically to be fully "vested" in the plan employees need to have completed five years on the job, otherwise participants typically forfeit any unvested pension benefits.
Cash Balance Pension Plans
The employer establishes and credits a participant's account with a set percentage of yearly compensation (typically 5%) plus interest charges each year.   A cash balance pension plan is a defined-benefit plan. Annually, employees receive a statement showing the hypothetical value of the account in addition to estimated monthly income payout (or lump sum) available at  retirement age--typically age 65.
Unlike traditional pensions, should an employee leave the company before retirement age, the contents of the cash-balance plan as a lump sum can be rolled into an IRA.
As such, the plan's funding limits, funding requirements and investment risk are based on defined-benefit requirements: as changes in the portfolio do not affect the final benefits to be received by the participant upon retirement or termination, the company solely bears all ownership of profits and losses in the portfolio.

Although the cash balance pension plan is a defined-benefit plan, unlike the regular defined-benefit plan, the cash balance plan is maintained on an individual account basis, much like a defined-contribution plan. The cash balance plan acts similar to a defined-contribution plan also because changes in the value of the participant's portfolio do not affect annual contributions.

Pension Plans
The employer manages and funds for employees and provides a fixed payout at retirement. 
The payout typically depends on how long an employee worked for the employer and on their salary. At retirement, the employee can choose between a lump-sum payout or a monthly "annuity" payment.

Business Services

• Business Transitions
• Corporate Cash Management
• Company 529 Plans
• Employee Education
• Estate Planning
• Life Insurance
• Long Term Care  
• Key Executive Planning
• Retirement Plans
• Wealth Protection

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