Retirement Plan Comparison Chart 2015 Limits - page 5

Profit-Sharing Plan
Age-Weighted or New Comparability
Profit-Sharing Plans
Defined Benefit Plan
A profit-sharing plan allows employees to share in
the profits of the employer on a tax-deferred basis.
The amount contributed may be at the employer’s
discretion each year, thus an employer is not locked
into a predetermined contribution amount. An
employer does not need to have a profit in a given
year in order to make a contribution.
Age-Weighted and New Comparability Profit-
Sharing plans are means of allocating profit-sharing
contributions. These “age-based” plans may be
appropriate for business owners who are older than
most of their employees and want to maximize their
own contributions, while keeping contributions for
other employees affordable.
A defined benefit plan provides a participant with
a specific benefit at retirement age, which is based
on a predetermined formula and calculated by an
actuary. These plans are most beneficial to older
business owners with high, stable incomes who
need a rapid accumulation of assets over a short
period of time.
Employer only. The maximum profit-sharing allocation
per participant is the lesser of 100% of the participant’s
compensation (not in excess of $265,000 for 2015)
or $53,000 for 2015.
Employer only. The overall maximum contribution per
eligible employee is 100% of compensation, not to
exceed $53,000 in 2015, including 401(k) deferrals,
based on the first $265,000 of compensation in 2015.
Employer only with no specific contribution limits;
however, the maximum annual retirement benefit is
equal to the participant’s highest average annual
compensation for any period of at least three
consecutive years (if shorter, the participant’s full
period of service), not to exceed $210,000 in 2015,
subject to a mandatory funding requirement.
The maximum profit-sharing allocation per
participant is the lesser of 100% of compensation
or $53,000 in 2015.
Employers decide each year the amount they
will contribute.
Employers can institute loan privileges that will
allow employees to borrow up to $50,000 or 50%
of their vested assets, whichever is less.
A choice of vesting schedules is available to reward
long-term employees.
Can be combined with a 401(k) feature.
Employer may deduct contributions up to 25% of
total aggregate compensation of all participants.
All the advantages of a profit-sharing plan plus the
ability to provide business owners with a higher
contribution allocation, while keeping the cost of
contributions for younger employees more affordable.
Beneficial to companies where the key employees
are generally at least 10 years older than the rest
of the employee population.
Can be combined with a 401(k) feature.
Employer may deduct contributions up to 25% of
total aggregate compensation of all participants.
Employer can contribute (and deduct) more than
under other retirement plans.
Plan provides predictable benefits.
Certain plans may invest in individual insurance
and annuity policies, subject to the requirements
of the Internal Revenue Code and regulations,
where the retirement and death benefits under
the plan are guaranteed by the insurance
company.
Like SEPs, owners must make employee
contributions if they wish to contribute
for themselves.
Administrative and government filings are required,
so cost and complexity can be higher.
Greater administrative requirements and costs than
SEP or traditional profit-sharing plans.
Defined benefit plans can be more expensive to
establish and maintain than defined contribution
plans. The services of an actuary are required.
Mandatory contributions are required to fund the
employees’ retirement benefit.
The benefit promised by the plan must be paid,
regardless of the plan’s investment performance.
Requires substantial contributions for the years
it is funded.
Subject to the Pension Benefit Guaranty
Corporation (PBGC) premium requirements.
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