Qualified Plans

Retirement plans are retirement programs sponsored and maintained by an employer/union. (1) allow employers to set aside dollars for the eligible employees, including owner-employees, during their working years. (2) permit these dollars plus earnings to accumulate tax-deferred until distributed to employee (generally, upon separation from service or retirement). (3) must comply with IRS rules and regulations in order to qualify for tax advantages. Most retirement plans can be classified as either defined benefit or defined contribution plans. A defined benefit plan provides a specific periodic benefit for life upon the employees’ retirement similar to an annuity payment. The amount that the employee will receive at retirement is known but, generally, the annual funding obligation is determined annually.  A defined contribution plan provides a specific annual contribution, usually a percentage of each eligible employees’ salary. The amount that the employee will receive at retirement is not known but the annual funding obligation can be determined. The employee accepts the investment risk. Defined contribution plans come in many varieties: money-purchase, pension plans, profit-sharing plans, 401(k), SEPs, Simple plans and 403(b)