At LT Trust, we provide a myriad of plan designs, allowing you to tailor the 401(k) plan to your client’s specific goals.
The traditional plan design provides a uniform percentage of compensation or a flat dollar amount to each eligible employee, allocating more dollars to those employees who have higher eligible compensation.
A New Comparability Plan (NCP) provides greater flexibility in making employer contributions based on non-discriminatory categories that you select, such as ownership, title, hourly vs. salaried employees etc. This allocation works best when the employer wants to maximize contributions for a specific group of employees while minimizing contributions for all other employees. These plans are tested by projecting benefits to retirement age as opposed to simply providing contribution amounts. Additional nondiscrimination testing is required to ensure compliance with IRS regulations.
Best for: firms that want to provide an efficient tax shelter for their principal staff.
This option allocates contributions based on both the age and compensation of eligible employees. Since age is factored into the formula, a higher percentage of employer contributions may be allocated to older employees. The rationale behind this is that older employees have less time before they retire and consequently less time to accumulate retirement savings. However, the employer’s contributions may be allocated to provide an equal assumed retirement benefit at normal retirement age for all participants in the plan.
Best for: business owners who are considerably older than their employees and who may not have had the opportunity to accumulate retirement savings in their earlier years.
Similar to a traditional 401(k) plan, the Safe Harbor 401(k) Plan must provide for either matching or non-elective employer contributions that are fully vested when made. A Safe Harbor 401(k) Plan is not subject to the annual ADP/ACP nondiscrimination testing that is required under a traditional 401(k) plan and may not be subject to the top-heavy rules. This essentially allows the higher compensated employees of the plan to defer up to the IRS limit without worrying about having contributions refunded due to failed nondiscrimination testing.
Best for: Companies that can afford making fixed employer contributions in return for amnesty from ADP/ACP and top- heavy testing.
An integrated allocation combines the benefits paid to Social Security with those provided by the plan to determine the total contribution. For lower-paid employees, Social Security benefits represent a greater percentage of their salary. Therefore, the IRS allows a retirement plan to increase the contributions to those employees who are making more than a threshold determined by the employer, up to the Social Security wage base.
Best for: employers who want to be able to provide a larger allocation of the employer’s contribution to higher paid employees.
A Qualified Automatic Contribution Enrollment Arrangement (QACA) is commonly referred to as Safe Harbor Automatic Enrollment. This plan design allows eligible employees to be automatically enrolled at a minimum initial deferral of 3% in the first year, increasing annually until the deferral reaches 6% of pay. Additionally, a QACA requires a minimum employer contribution that can be in the form of a match or non-elective contribution; employer contributions must be 100% vested within two years.
Best for: employers looking to avoid ADP/ACP testing but are interested in a less expensive option than a Safe Harbor 401(k) matching contribution.