DEFINED CONTRIBUTION PLAN

Attributes

• The benefit is determined by the contribution

•Tends to favor younger participants

• Employee bears investment risk

• Greater employer flexibility

INTEGRATED FORMULA - Profit Sharing Plan

Goal: Maximize benefits to highly compensated employees.

• Correlates the employer contribution formula with Federal Social Security Benefits

• The Internal Revenue Code allows additional allocations to the compensation in excess to the Social Security Taxable Wage Base (TWB) because these dollars do not accrue Social Security Benefits

• Favors Highly Compensated Employees (HCE's)

AGE WEIGHTED FORMULA - Profit Sharing Plan

Goal: Maximize benefits older owners

• Uses age and compensation as a basis for allocating employer contributions.

• Favors older higher paid individuals.

CROSS TESTED FORMULA - Profit Sharing Plan

Goal: Maximize benefits older owners and minimize contributions for non-owners

• Divides employees into groups and sets contribution rates for each group.

• Non-highly compensated employees typically receive a contribution of at least 3% of salary.

• Can be designed to favor any group of employees.

TARGET BENEFIT FORMULA - Profit Sharing Plan

Goal: Target a stated benefit at normal retirement age

• A hybrid of a Money Purchase Plan and a Defined Benefit Plan

• Required annual contributions.

• It is like a Defined Benefit Plan in that the annual contribution is determined by the amount needed each year to accumulate a "Target Benefit" a a participant's normal retirement age

• The contribution is determined using a specified interest rate and mortality table with a plan

• Favors older higher paid individuals

401(k) FEATURE

Goal: Provide for employees tax deferral contributions

Traditional

• Requires non-discrimination testing

• May limit the amount of HCE referrals

MAY BE COMBINED WITH ANY PROFIT SHARING FORMULA

Safe Harbor

• Automatic passing of the non-discrimination testing

• Requires 100% vesting of employer contributions

• Guarantees maximum HCE deferral contributions

• either a 3% non-elective contribution to all eligible employees or,
• a matching contribution of 100% of first 3% deferred; and next 50% of 2% deferred

DEFINED BENEFIT PLAN

Attributes

• The contribution is determined by the benefit

•All participants subject to same benefit calculation

• Employer bears investment risk

• Less employer flexibility

TRADITIONAL (Single Life)

Goal: Provide a definite, guaranteed monthly retirement benefit for the lifetime of retirees.

• Benefit determined by a formula based on employment duration and compensation

• The normal benefit is based on a sigle life expectancy

• Alternative forms of benefit (e.g., joint and survivor) are usually available but will result in a lower monthly benefit

• Contributions and investment risk are borne by employer

CASH BALANCE

Goal: Provide an account type benefit that cannot be affected by market return

• A hybrid of Defined Contribution and Defined Benefit Plans

• Provides a hypothetical account balance

• Benefit amounts are guaranteed and can never be reduced

• Favors short service employees

412(i) INSURANCE CONTRACT PLAN

Goal: A simple guaranteed plan that does not require annual valuation by an actuary.

• The plan must be funded exclusively with annuity products, or a combination of life insurance and annuity products, issued by an insurance company.

• Benefits must be equalled to the guaranteed values provided in the contracts by the insurance carrier.

•Life insurance dividends and excess annuity interest must be used to reduce future contributions to the plan.

JOINT AND 100% SURVIVOR WITH INCIDENTAL DEATH BENEFIT

Goal: Maximize Retirement Benfits and Contributions

• Normal and only form of benefit is joint and 100% survivor monthly payment for as long as either retiree or spouse survive

• Offers an incidental death benefit as a multiple of the monthly retirement benefit

• Lump sum distributions are not available

• Helps reward, recruit and retain employees