Plan Types

401(k)

A 401(k) Plan is a Profit Sharing Plan which has a feature that permits voluntary payroll deduction savings for employees. Employee contributions can be pre-tax dollars, so some of the salary that would normally go to the government as income taxes would instead go into a 401(k) account. The employee does not pay taxes on that money until it is taken out of the account. In addition, the earnings on the 401(k) investments are not taxable until taken out of the Plan. Employee contributions can also be post-tax dollars (Roth Contributions). Roth contributions and the earnings on those contributions can be removed from the plan tax-free if certain conditions are met.

Traditional Defined Benefit

A traditional defined benefit plan provides a retirement benefit for each participant based upon a written formula(s). A range of contribution is determined each year based on factors such as age, compensation and years of service of Plan participants, investment performance of Plan assets and prescribed interest rates and mortality tables. When appropriate, Prime will custom design a defined benefit plan which will accomplish the objectives of the client within initial budgetary requirements.

Profit Sharing Plans

A profit sharing plan is a type of defined contribution plan.

The employer's contribution to a profit sharing plan is not required to be fixed. The most common contribution formula in a profit sharing plan is a discretionary formula under which the employer determines each year how much to contribute. The total employer contribution may range from 0% to 25% of eligible compensation. Contributions are allocated based on each participant's compensation.

Cash Balance Plans

Cash Balance Plans fall under the category of defined benefits plans, however operate like defined contribution plans (401(k), profit sharing plan...) in certain regards. Each participant has credited to his "Cash Balance Account" on an annual basis both a pay related credit as well as an investment credit. The pay related credit is a fixed dollar amount or a percentage of total wages for the year and the investment credit is interest credited based on some well defined index.

• The defined contribution plan limitations are not applicable to Cash Balance Plans (though other limitations may exist). In addition a company can sponsor both a defined contribution plan (401(k), profit sharing...) and a Cash Balance Plan.
• Some other advantages of Cash Balance Plans over traditional defined benefits plans are the ease of understanding and the ability to usually provide the same pay related credit rate to all non key employees, regardless of age. As is true with a traditional defined benefits plan, if the key employees are older than most of the staff, a Cash Balance Plan can be designed that can provide very significant benefits to a select group of key employees with a reasonable level of benefits to other employees.

An Age-Weighted Plan may be a Money Purchase Plan with a required contribution or a Profit Sharing Plan with a flexible contribution. Allocations are weighted in favor of those employees closer to retirement.

Cross-Tested

A Cross-Tested Plan may use any formula which will produce the desired results. The formula may favor any participant or group of participants as long as the Plan is able to satisfy Internal Revenue Service discrimination testing requirements. The Plan may have a required or a flexible contribution. It is possible to put every employee in his/her own group to provide the most flexibility.