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Our Plans

Retirement is one of life's defining moments. It is the reward for a career well spent. Each client has a unique vision of what his retirement will look like. With this is mind, FAC will design a plan to meet a client's individual goals. Generally speaking, retirement plans fall one of two categories – a defined contribution plan or a defined benefit plan. There are different options for each type. An employer can implement one or both. In fact, some employers adopt both types of plans in order to maximize benefits.

A qualified plan has several advantages including:

  • Employer contributions to the plan are tax-deductible.
  • Earnings on investments accumulate tax-free, which allows contributions and earnings to compound at a faster rate.
  • Employees are not taxed on contributions and earnings until they receive benefits.
  • Employees may make pretax contributions to certain types of plans.
  • Plan administration expenses are tax-deductible.
  • A plan enables an employer to attract and retain employees.

Defined Benefit Plans

A defined benefit plan promises a specified monthly benefit at retirement. The plan may state this promised benefit as an exact dollar amount, such as $1000 per month at retirement or, more commonly, it may calculate its benefit through a plan formula that considers such factors as salary and service. Employer contributions are actuarially determined, and the benefits in most traditional defined benefit plans are protected, within certain limitations, by federal insurance provided by the Pension Benefit Guaranty Corporation (PBGC).

Fully Insured Defined Benefit Plans: A fully insured defined benefit plan is funded with a combination of insurance and annuity products. Therefore the benefits are guaranteed by an insurance company. It is the safest and most secure plan and offers the largest tax-deductible contribution of all qualified retirement plans. This plan is the perfect solution for clients who desire conservative investment strategies, as it avoids any risk of market exposure and insures that they will have a sufficient pool of assets to provide the promised benefits at retirement. Depending on age and service, an employer's contributions can exceed $300,000 annually.

Defined Contribution Plans

A defined contribution plan defines the contribution the company will make to the plan and how the contribution will be allocated among the eligible employees. Separate account balances are maintained for each employee. The employee's account grows through employer contributions, investment earnings and in some cases forfeitures. Some plans may also permit employees to make contributions on a before-and/or after-tax basis. Since the contributions, investment results and forfeiture allocations vary year by year, the ultimate retirement benefit cannot be predicted.

The maximum annual amount that may be credited to an employee's account (taking into consideration all defined contribution plans sponsored by the employer) is limited to the lesser of 100% of compensation or $66,000.

Profit Sharing Plans

A Profit Sharing Plan is a retirement arrangement in which the company may make a discretionary contribution each year. This makes a profit sharing plan one of the most flexible qualified plans available. Each year the employer decides the amount, if any, to be contributed to the plan. These contributions are invested in a tax-deferred, creditor-protected trust. Tax-free earnings accumulate until the eventual distribution to participants or their beneficiaries. This payout usually occurs at retirement or some other specified event (disability, death or termination of employment). Contributions are normally keyed to yearly profits, although profits are not required for a contribution to be made. Retirement benefits paid to employees are based on the amount in the participant's account at retirement. For tax deduction purposes, the company contribution cannot exceed 25% of the total compensation of all eligible employees.

401(k) Plans

More and more employees perceive 401(k) plans as a valuable benefit, which have made them the most popular retirement plans today. Employees can benefit from a 401(k) plan even if the employer makes no contribution. Employees voluntarily elect to make pre-tax contributions through payroll deductions up to an annual maximum limit of $22,500. Employees age 50 and older are also able to defer a "catch-up" contribution. The current catch-up contribution amount is $7,500. Often the employer will match some portion of the amount deferred by the employee to encourage greater employee participation. Since a 401(k) plan is a type of profit sharing plan, profit sharing contributions may be made in addition to or instead of matching contributions.

Money Purchase Pension Plans

A money purchase pension plan operates like a profit sharing plan. The major difference is that, unlike profit sharing plans, where employers are permitted to make discretionary contributions each year, with a money purchase pension plan, the employer has a set contribution rate which is stated in the plan document when the plan is set up. These mandatory contributions must be made each year regardless of the employer's profits. Failure to make a contribution can result in the imposition of penalties. Contributions are generally based on a fixed percentage of each employee's compensation.

New Comparability Plans

These plans, sometimes referred to as cross-tested plans, are profit sharing or money purchase pension plans (defined contribution plans) that are tested for nondiscrimination as though they were defined benefit plans. New comparability plans are generally utilized by small businesses that want to maximize contributions to owners and higher paid employees while minimizing those for all other employees. The employees can be separated into two or more identifiable groups such as owners and non-owners and each group may receive a different contribution percentage. The plan must still satisfy the nondiscrimination requirements.