Cash Balance Pension Plan

A cash balance pension plan is a type of defined benefit retirement plan that combines features of both traditional pensions and defined contribution plans. In a cash balance plan, the employer contributes a set percentage of each employee’s compensation into an individual account, similar to a defined contribution plan.

However, the employee’s account balance is based on a predetermined formula that calculates the hypothetical balance of a traditional pension plan, with a guaranteed rate of return. This formula typically takes into account the employee’s age, years of service, and salary history.

The employee is guaranteed to receive at least the vested portion of their account balance, which accrues over time, and can receive a lump sum payout or an annuity payment upon retirement. Unlike traditional pensions, which typically provide an ongoing stream of income throughout retirement, cash balance plans typically provide a single distribution at retirement.

Cash balance plans are regulated by the Employee Retirement Income Security Act (ERISA) and are typically offered by employers as a way to provide retirement benefits to their employees while managing the risk and cost associated with traditional pension plans.

Solo 401K

A Solo 401k is a retirement savings plan designed for self-employed individuals or business owners who do not have any full-time employees, other than themselves and their spouse. Also known as a one-participant 401k, it operates similarly to a traditional 401k plan, but with some distinct differences.

With a Solo 401k, you can make contributions as both the employer and the employee, allowing you to save more money for retirement compared to other self-employed retirement accounts like a SEP IRA or a SIMPLE IRA. As the employee, you can contribute up to $19,500 in 2021 and 2022, and if you are over 50 years old, you can make an additional catch-up contribution of $6,500. As the employer, you can contribute up to 25% of your net self-employment income up to a maximum of $58,000 in 2021 and 2022.

Solo 401k plans offer several benefits, including tax-deferred growth, flexible contribution options, and the ability to borrow against your retirement savings.

New Comparability Profit Sharing Plan

New comparability profit sharing is a type of profit sharing plan that allows employers to allocate a larger percentage of the company's profits to certain employees, typically higher-paid or key employees, compared to a traditional profit sharing plan.

In a new comparability profit sharing plan, the employer groups employees into different categories based on their compensation levels, job titles, or other factors. Each group is then assigned a different percentage of the company's profits to be allocated as contributions to their retirement accounts.

For example, the employer may assign 10% of profits to a group of executives earning $200,000 or more per year, while assigning only 5% to a group of administrative staff earning less than $50,000 per year.

This type of plan can be attractive to employers who want to reward and retain their top-performing employees, while still offering some level of retirement benefits to all employees. However, it can also be complex to set up and administer, and may require the services of a financial professional or retirement plan expert.

Profit Sharing Plan

A profit sharing plan is a type of retirement plan in which an employer contributes a portion of its profits to a pool of funds that is distributed among eligible employees. This type of plan is designed to incentivize employees to work towards the success of the company, as they stand to benefit from the company's profits.

In a typical profit sharing plan, the employer determines how much of the company's profits will be contributed to the plan, and then allocates that amount among eligible employees based on a predetermined formula. The formula may take into account factors such as an employee's salary or length of service with the company.

The funds contributed to the plan are typically invested, and employees may be able to choose from a selection of investment options. The funds grow tax-deferred until the employee withdraws them, typically at retirement.

Profit sharing plans can be a valuable tool for employers to attract and retain talented employees, as well as to motivate them to work towards the success of the company. For employees, profit sharing plans can provide a valuable source of retirement income, as well as a sense of ownership and investment in the success of the company.

Safe Harbor Plan

A safe harbor plan is a type of retirement plan designed to help employers comply with certain non-discrimination requirements set by the IRS. These requirements prohibit highly compensated employees (HCEs) from receiving disproportionate benefits or contributions compared to non-highly compensated employees (NHCEs) in a 401k or other qualified retirement plan.

By adopting a safe harbor plan, an employer can automatically satisfy certain non-discrimination testing requirements and avoid costly penalties that can arise from failing to meet these requirements. Safe harbor plans offer several benefits, including:

1. Enhanced contribution limits for HCEs: In a safe harbor plan, HCEs can make larger contributions to their retirement accounts without worrying about violating non-discrimination rules.

2. Reduced administrative burden: Safe harbor plans typically have fewer administrative requirements than traditional 401k plans, which can save employers time and money.

3. Greater employee satisfaction: Safe harbor plans can be designed to provide generous matching contributions, which can help attract and retain talented employees.

Overall, safe harbor plans can be an effective way for employers to offer a valuable retirement benefit to their employees while minimizing their own administrative burden and legal risk.

Several New Programs Will Begin to Enroll Workers, Some Begin Implementation Planning for 2023 Launch, While Others Consider Legislative Proposals and Partnership Opportunities

2022 STATE PROGRAM STATUS

Georgetown University

States will continue to lead with new, innovative programs and proposals during the 2022 legislative sessions. For access to the most up-to-date, interactive 2022 state map, with detailed tracking of implementation status, legislative action, and summaries of bills introduced at the state and local level, visit State Programs and Legislation (log in required).

As 2021 ended, more than 20 states and cities had introduced legislation to establish new programs or form study groups to explore their options. Since 2012, at least 46 states have acted to implement a new program, study program options, or consider legislation to establish state-facilitated retirement savings programs. Today, there are 15 states and 2 cities that have enacted new programs for private sector workers.

17 Programs (15 states and 2 cities)

To date, new programs have adopted one or a combination of these four models:

• Auto-IRA(employer participation required if no plan is already offered)
• Payroll deduction IRA (voluntary)
• Multiple Employer Plan (MEP)(voluntary)
• Marketplace(voluntary)

There are now 17 enacted retirement savings programs (15 states and 2 cities**) for private sector workers.

*The new Hawaii program is a variation on the auto-IRA model.  Eligible employers must notify their employees about the program and, if employees choose to opt-in to the program, employers must then facilitate contributions to the programs.

**New York City’s program is expected to merge into the New York State program. The Seattle, WA program is on hold indefinitely pending state legislative action.

As of April 1, 2022, 6 states of these 15 state programs (4 auto-IRA – OR, IL, CA and CT and 2 others – MA and WA) are open to employers and workers.

For an overview of all the state programs (with hyperlinks to state program websites and additional information), see State-Facilitated Retirement Savings Programs: A Snapshot of Plan Design Features (21-02, October 31, 2021 UPDATE)

For more information and a breakdown by state, please visit https://cri.georgetown.edu/states/

Did you miss our latest webinar featuring Mark Lewis with MAP Retirement? If so, check out the replay and learn how to help your small business clients save on their year-end taxes.

In case you missed this week's webinar regarding 401K plan setup for small business clients, please find our replay below.  Jerrod Weiss with LT Trust helps explain how there is still time to help your small business clients set up 401K plans for 2021?

State Retirement Plan Mandates: What States Have Them and When Do They Take Effect?

 

CONTRIBUTOR

Vestwell

 

PUBLISHED

JAN 13, 2022 1:37PM EST

 

Currently, there are 14 states with retirement plan mandates to help individuals save for retirement. In this article, explore program mandates, structure, and roll-out plans for each of the 14 states to understand how (and if) this applies to you and your small business.

California

Name: CalSavers

Mandate: Companies with 5+ employees must offer a plan or face a fine of $250 per eligible employee after 90 days of noncompliance and an additional fee of $500 per eligible employee after 180 days of noncompliance.

Timing: As of September 30, 2020, anyone with 100+ employees must have complied; as of June 30, 2021, those with 50+ employees must have complied, and by June 30, 2022, those with 5+ employees must comply.

Colorado

Name: Colorado Secure Savings Programs

Mandate: Companies that have been in business for 2+ years with 5+ employees must offer a plan or face a fine up to $100 per eligible employee per year (up to max of $5,000 annually).

Timing: The pilot program begins in October 2022, enrollment begins in 2023.

Connecticut

Name: MyCTSavings

Mandate: Companies with 5+ employees paid more than $5K each in the calendar year (unless the business already offers a qualified, employer-sponsored retirement plan). Non-compliance may result in an investigation and penalties.

Timing: Pilot launched in November 2021, with full launch slated for early 2022.

 

Click here to view additional states.

 

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