Qualified Retirement Plans : The Pension Protection Act of 2006 (PPA) is the best news for retirement planning in years. PPA allows for a retirement plan design that will give a client a full pension plan plus a 6% profit sharing ( safe harbor plus) in addition to a full elective k deferral. Beginning in 2008 plans covered by the PBGC can utilize upto a 25% profit sharing and a full elective k deferral. It is quite simply business owner friendly pension legislation.
Retirement Plan combinations allow for total contributions of 3X to 20X the 401k profit sharing stand alone contribution limit for business owners and highly comp’d ee’s. Instead of a $56,000 to $62,000 limit, combined plan contributions can easily reach or exceed $500,000 to $1,000,000. Guaranteed benefit plans with direct allocations to business owners can reach the $250,000 to $1,000,000 contribution range in addition to the full (k) elective and the 6% or 25% profit sharing with a safe-harbor .
Conversely, a combination pension- profit sharing plan design that only spends $56,000 for each owner will normally experience a material reduction in overall employee participant costs.
The business owners gain either way by adding the pension. Add the security of a pension to the fact that the owner has total control of the pension trust and a much, much lower fiduciary risk profile and PPA is a huge winner.
Add-on life insurance benefits in any retirement plan design are an attractive means of providing for business (buy-sell) and personal life insurance needs on a tax deductible basis. Overall initial plan contributions and deductions are increased in direct proportion to the life benefit provided.
A PRIME IRC Section 401(h) can help retain and reward valued employees ( golden handcuffs ), as well as, marginalize the plan cost for non-productive, short term human resources.
Caveat: company contributions to a post-retirement medical account for key employee’s are subject to IRC Section 415(c)(2) annual addition limits. Defined benefit plans are not subject to this limitation.
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