Plan Design Options

Principal Objectives of a Plan - Companies with Employees
A company may have various objectives when considering a retirement plan, such as:

  • Employee perk/benefit:  In many cases, a plan’s principal purpose is to attract and retain employees, or to maintain parity with other employers in an industry.  A deferral-only 401(k) Plan is often established as a low-cost means of providing this valuable benefit to employees.
  • Tax Planning Tool for Owners:  In many cases, a properly designed plan can allocate to the owners as much as 90% of company contributions to a 401(k), Profit Sharing, or Defined Benefit Plan.  This compares very favorably to taking the same amount as taxable income – particularly if the owners are in the highest marginal tax bracket.
  • Target the Most Valuable Employees:  Company’s sometimes wish to reward certain classes of employees by making pre-tax contributions to a retirement program for a targeted group of valuable employees.  The Tiered Allocation Method used with Benetech’s Profit Sharing and 401(k) Plans can accomplish this in most cases.

The choice of other plan provisions is often driven by which of these principal objectives is most important, and the relative weight of the others.

For example, if offering a 401(k) Plan to employees as a low-cost perk to recruit employees is the principal objective, then the plan might have no waiting period with immediate entry upon date of hire, and no “Safe Harbor” provisions would be used.  This would allow prospective employees to view the 401(k) Plan as something immediately available.

However, if the plan was principally a tax-planning tool for the owner, then the plan would probably require a one year waiting period for eligibility, with two entry dates per year, adopt “Safe Harbor” provisions, and use the Tiered Allocation Method.  This would maximize contributions to the owners, while minimizing contributions to the other employees.

Tax Planning Benefits for Owners
A properly designed plan can often be one of an owner’s most effective tax-planning tool.  Some of the benefits include:

  • Owners are able to acheive a higher percentage in their investment account than if the same amount was taken as taxable income.
  • Amount contributed for employees may be viewed by them to be a valuable benefit.
  • Vesting schedule on non-Safe Harbor employer contributions encourages employee retention.  Forfeited amounts are re-allocated according to the plan’s formula (if the owner is allocated 90% of contributions under the formula, then the owner would be allocated 90% of the forfeitures).
  • Plan investments are tax-deferred until distributions are taken.
  • Participants may roll distributions from the plan into an IRA account, further deferring taxation on the amount.


Request a Proposal
The quickest means for you to find out what options are available for your company is to request a free, no obligation proposal from Benetech.  With some basic information about the company and the employees, we can generate a contribution illustration for your company.  For more information on this service, please click here.