Why Employees Receive 401(k) Refunds Each Year – Corrective Distributions
If some of your employees are receiving refunds from your company’s 401(k) plan each year, it may be due to a failed compliance test. In this article, we’ll explain what these tests are and how you can prevent these from being a recurring problem. Although 401(k) plans have emerged as one of the most popular […]
Sidecar Accounts
Before the retirement community shifted to a pretax 401(k) system in the 1980s, many companies offered a supplemental savings account (to be used for short-term emergencies) to complement the defined benefit (DB) plans of their employees. These supplemental savings accounts are nearly identical to what are known today as “sidecar accounts.” A sidecar account is […]
Hardship Withdrawals from 401(k) and 403(b) Plans
On February 23, 2017, the Internal Revenue Service released its Substantiation Guidelines for Safe-Harbor Distributions from Section 401(k) Plans. And on March 7, 2017 they released a similar memorandum regarding section 403(b) plans. These two statements outlined the requirements for safe harbor hardships in an effort to better inform the public about which events allow […]
The Cadillac Tax
Health insurance has always been a hot topic of conversation both in the political and financial worlds, and it’s easy to see why, especially in recent years. Health care costs continue to skyrocket, not just for individuals, but also for employer-sponsored health care plans. For example, 2017 has seen health care costs increase at 79% […]
Is PBGC Coverage Required for Your Plan?
The Pension Benefit Guaranty Corporation was established on September 2, 1974 under President Gerald R. Ford with the signing of ERISA (the Employee Retirement Income Security Act). According to Ford, “Under this law, the men and women of our labor force will have much more clearly defined rights to pension funds and greater assurances that […]
Supreme Court Helps to Clarify Definition of ERISA “Church Plans”
The Employee Retirement Income Security Act (ERISA) was signed in to law in 1974 and was designed to protect the beneficiaries of retirement plans. However, due its strict funding rules and required fees for the PBGC (Pension Benefit Guaranty Corporation), certain plans are given exclusion from ERISA to help them save money. There are several […]
Employees & Short-Term Value
In today’s world of instant gratification, it’s no wonder that workers value short-term benefits the most. According to a worldwide study of more than 10,000 workers conducted by Mercer, a salary increase was preferred over all types of benefits. While saving for retirement may seem to some like saving for a stranger, U.S. workers did rank DC […]
Cash Balance Plans for Larger Tax-Deferred Contributions
Cash Balance Plan: What is it? How does it work? There are two main types of qualified retirement plans: defined contribution (DC) and defined benefit (DB). The maximum annual contribution to a DC plan is $54,000, while the contributions to a DB plan could be in excess of $215,000. This makes DB plans a much […]
Profit Sharing Plans: Better Ways to Use Them and Why
A Profit Sharing Plan is another special type of defined contribution (DC) plan under which employers, rather than employees, are the ones making contributions. After the company makes its annual contribution, the total contributions are then allocated to individual employee accounts, generally using the “comp-to-comp” method, but several other methods are also available. Because the […]
Safe Harbor Plans: Costly When Poorly Designed
A safe harbor provision simply means that you will not violate a statute or regulation as long as certain conditions are met. In other words a free pass for nondiscrimination testing for 401(k) plans. Traditional Safe Harbor Costs In order for 401(k) plans or other qualified plans to enjoy tax preferred status, they must comply […]