If you're considering different retirement plan options, this is a good place to start. We've provided a very simple explanation of some of the more common types of retirement programs available. Of course, in many cases, you are able to combine certain plan types or add unique plan specifications in order to create a custom solution that truly meets your needs. Please contact us for assistance in plan design.

We've also provided a brief discussion of qualified plans and bundled vs. unbundled administation, as these questions arise frequently.

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401(k) Plans

A 401(k) Plan provides significant advantages to both employers and employees. Not only does a 401(k) Plan attract and retain qualified employees, but it also provides a low-cost means of providing visible and appreciated retirement benefits to employees. Employees have a real opportunity to participate actively in saving for retirement on a tax-deductible basis. When employer contributions are made, funds are allocated to participants before federal and state income taxes are imposed on such funds.

Employees choose to contribute a certain dollar amount (or percentage) to their retirement account. These contributions are made directly from pay before federal and state income taxes are imposed. These contributions earn a pre-tax investment income, and a discretionary matching or profit sharing employer contributions may be made. Forfeitures from terminated employees can be added to the employee accounts or can be used by the employer to help defray the administration costs. A 401(k) Plan has a high degree of flexibility in its design and can also include hardship withdrawals and participant loans, among other options.

Profit Sharing Plans

A Profit Sharing Plan is a retirement arrangement in which the company may make a discretionary contribution each year. These contributions are invested in a tax-deferred, creditor-proof trust. Tax-free earnings accumulate until the eventual distribution to participants or their beneficiaries. This payout usually occurs at retirement or some other specialized 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. Note that a Profit Sharing Plan can include 401(k) features.

Profit Sharing contributions may be allocated to each participant in proportion to pay, integrated with the Social Security Wage Base, or weighted on age and/or service with the employer.

Money Purchase Plans

A Money Purchase Pension Plan is a retirement arrangement in which employer contributions are mandatory and usually based on a percentage of each eligible employee's compensation. A contribution formula is determined by the employer at the inception of the plan. These employer contributions are tax-deductible and are contributed on each employee's behalf to be distributed at retirement, disability, death, or termination of employment. As with Profit Sharing Plans, the employer contributions may be made subject to a vesting schedule.

Employee Stock Ownership Plans (ESOPs)

An Employee Stock Ownership Plan is a special type of plan whose funds must be invested primarily in employer securities (stock). This type of arrangement benefits the employer in three ways: (a) providing a market for the company's stock, (b) giving the employer tax deductions without affecting cash flow, and (c) keeping company stock in friendly hands in the event of a hostile takeover of the company.

Defined Benefit Plans

A Defined Benefit Plan essentially offers employees a "guaranteed paycheck for the remainder of their lifetime." Retirement benefits earned under this type of plan must be definitely determinable. For example, a plan entitles a participant to a monthly pension for his or her post-retirement lifetime equal to 30% of monthly compensation is a Defined Benefit Plan. Employer contributions are actuarially determined, certain benefits may be insured by the Federal Pension Benefit Guaranty Corporation (PBGC) and special rules apply upon termination of this plan.

Section 125 Cafeteria Plans

Increases in the cost of individual medical expenses, group health and dental insurance premiums, and dependent care expenses have encouraged a number of employer to adopt a Cafeteria Plan. This benefit allows employees to use pre-tax dollars to pay health insurance premiums, medical expenses (even those not covered by insurance), and dependent care costs for themselves and their families. Since contributions are taken from pay before federal and state income taxes and before payroll and unemployment taxes, the employee can truly avoid (not simply defer) all taxes on these contributions. Tax advantages may vary from state to state. The reduction in employer and employee payroll taxes will often more than offset the administrative costs of maintaining a Cafeteria Plan.

Qualified Plans

A qualified plan offers benefits to all eligible employees on a non-discriminatory basis, whereas a nonqualified plan is offered only to executive employees. The retirement funds in a qualified plan are not subject to the company's liabilities, which means that even under a dramatic circumstance such as bankruptcy, these funds are wholly protected from creditors. They are "guaranteed," so to speak. If a plan is determined qualified by the IRS, many specific tax advantages are also given to the company. For example, a current income tax deduction for contributions.

Unbundled Plans

An "unbundled" plan uses multiple entities to provide plan services, thus ensuring the best fit in each area of expertise. Essentially, plan services are provided by those who are able to do so at the lowest cost and with the greatest level of efficiency and expertise. A third party administrator, like Randall & Hurley, Inc., provides the recordkeeping and compliance services needed to properly account for participant plan balances and to insure that the federal pension rules are properly applied to the retirement plan. An investment custodian independent of the administrator provides the critical facet of plan maintenance, making prudent investments available to the employees.

There are several key advantages in utilizing an unbundled administrator, including:

• More flexibility. The sponsoring employer and participating employees may choose among any and all prudent investments when an unbundled approach is selected. Plan provisions may be individually designed to meet specific client objectives.
• Greater expertise and familiarity with IRS and DOL rules. Randall & Hurley's staff includes an Attorney/CPA specializing in ERISA law, and an Enrolled Actuary. Combined pension experience is over 50 years.
• Lower, ascertainable costs. Unbundled third party administrative fees are determined separately from asset-based charges. Our fees are easily ascertained and succeeding year's charges may be projected with a high degree of certainty. Conversely, as plan assets grow, "bundled" charges similarly increase and will materially lower participant investment returns and fund accumulations over time.
• No conflicts of interest. Unbundled third party administrators remain independent of products and services (e.g., investments, insurance, internal audits) that may not be in the best interest to the client.