New Comparability Plan
What is a New Comparability Plan?
A new comparability plan is a tax-qualified retirement plan that allows for varying contribution allocations among groups of plan participants based on a number of scenarios including salary, service or position. The plan design may allow some employees to receive a much larger allocation than other plan participants, and flexibility to select those participants to reward with larger allocations.
Defined Contribution Plans offer several potential advantages:
- Some employees may receive a larger portion of the total contribution
- Vesting schedule may be added
- Life Insurance is permitted
- Up to 49% into specific, guaranteed whole life insurance contracts
- Up to 25% into indexed and traditional universal life insurance contracts
- Balance invested in annuities and/or equity based products
- Reduce mandatory contributions (vs. a defined benefit plan or traditional profit sharing plan)
Where does a New Comparability Plan fit best?
Below is a sample allocation vs. traditional profit-sharing plan or a SEP plan:
|
|
|
Contribution |
Contribution |
|
Age |
Salary |
Traditional/SEP |
New Comp Plan |
| Mgmt |
55 |
$245,000 |
$49,000 |
$49,000 |
| Sales |
33 |
$50,000 |
$10,000 |
$2,500 |
| Staff |
34 |
$40,000 |
$8,000 |
$2,000 |
| Admin |
54 |
$30,000 |
$6,000 |
$1,500 |
|
$73,000 |
$54,000 |
| Owner's Share of Total |
67% |
90% |
| |
Defined Benefit Plans
What is a Defined Benefit Plan?
A defined benefit plan is a tax-qualified retirement plan in which defined retirement plan in which defined retirement benefits may be funded and secured by individual life insurance, annuity contracts and/or other investment vehicles.
Defined Benefit Plans offer several potential advantages:
- Larger tax deductible contributions
- Larger retirement benefits
- Ability to tax deduct the funding of a buy-sell agreement or estate plan
- Ability to tax deduct survivor needs
- Survivor benefits may be funded with universal, whole life or term insurance
Other considerations to note:
- Requires an enrolled actuary to determine future contributions
- Employer bears the risk and rewards of the investments
- Plan must be funded each year in order to remain in compliance
- 40% of all eligible employees must be included in a defined benefit plan when paired with other qualified plans
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