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Contributions
We'll help you find the right contribution option to fit your needs!
With so many options available to your company and your retirement plan participants, it can be difficult to uncover what works best for your budget while offering fair and rewarding contributions to your employees.
As part of our ongoing services, we will work side by side with you to design the plan that best meets your company's needs and then make sure that, over time, it continues to best meet your needs.
Include matching contributions for an easy and affordable option
Matching contributions are a great way for your company to provide your employees with an extra bonus while also helping persuade employees to defer, which enables more highly compensated employees to defer more due to discrimination testing.
Your company's matching contribution does not have to be large in order to be beneficial. Studies have indicated that even a match of $0.25 to $0.50 for every dollar contributed by the participant is sufficient.
Some of the more common matching arrangements match contributions up to 4% to 6% that the employees defer. For example, a $0.25 contribution to each dollar up to 4% would only cost your company approximately 1% of compensation.
Safe-Harbor Contributions
Safe-Harbor Contributions allow a company to avoid some of the discrimination tests that are required for a 401(k) Plan, thus allowing Highly Compensated Employees to defer up to the annual limit. There are three basic types of Safe-Harbor Contributions:
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a 3% Contribution to all eligible employees;
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a $1 for $1 match to 3%, plus a 50¢ for $1 match from 3% to 5%; or
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a $1 for $1 match to 1%, plus a 50¢ for $1 match from 1% to 6%, if the plan automatically enrolls employees who do not make their own elections.
All three contribution types may be modified, subject to certain limits. Contributions under the first two options are 100% vested immediately. The third option allows for a “2 year cliff” vesting schedule.
Explore profit sharing contribution options for further plan customization
While profit sharing contributions are not required (unless a plan is Top-Heavy and is required to meet Top-Heavy minimums), they provide a way to set a specific, determinable amount of compensation provided by the company based on the profits of the company. A specific percentage of each employee's compensation – or an amount to be determined annually by the company – is then shared.
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Salary Ratio Contributions – Each participant receives a percent of the contribution based on the percent that their income compares to the total compensation. For example, if a participant's compensation is $50,500 and the total compensation is $1,000,000, the participant will receive 5% of the contribution ($50,000 / $1,000,000).
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Social Security Integrated Contributions – Each participant receives an allocation similar to the salary ratio contribution described above. Additionally, employees whose income is above the Social Security Taxable Wage Base will receive an addition allocation based on their income above the Taxable Wage Base.
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Age-weighted Contributions – Each participant receives an allocation to their account based upon not only their salary, but also their age. This helps participants who are closer to their retirement by increasing the amount of their allocations.
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"Cross-tested" Contributions – Each participant is put into a rate class and receives an allocation to their accounts based upon this rate class. This rate class is then tested for discrimination, based upon an analysis of their projected benefits and their retirement. This takes into account their age, income, and years of service.