Fundamentals | Adopting | Funding | Q-Life Insurance
Q: What are the benefits of an employer sponsored retirement plan?
A: For most people personal savings are inadequate to meet retirement needs and
Social Security benefits are insufficient to make up the difference. In order to maintain a comfortable standard of living after retiring, a third source of income is needed. An employer sponsored
retirement plan is the best way to provide this crucial third source of income. Without this
third source, many “retirees” simply have to continue working. Click here for more information.
Q: Who Can Sponsor a Retirement Plan?
A: Corporations, sole proprietors, partnerships, limited liability companies & partnerships, tax-exempt organizations, state & local governments, and trade unions may sponsor employee retirement plans.
Q: What do I need to sponsor a retirement plan?
- You must be an eligible employer.
- The plan must be in writing and adopted by certain deadlines.
- The existence of the plan and its rules must be communicated to your employees.
- The plan must be established and maintained for the exclusive benefit of your
employees and their beneficiaries (owners are considered employees). - You must intend the plan to be permanent. If necessary the plan may be dissolved at a later date but it may not be initially established solely to provide a short-term tax savings. Click here for more information.
Q: I am Self Employed. What is My Income for Qualified Plan Purposes?
A: Self-employed persons do not have W2 wages. Rather, earned income (income subject to FICA and FUTA taxes) is the measure of salary. Calculating earned income is complex and is impacted directly by the retirement plan contribution. This P & Q sheds some light on this important topic. Click here for more information.
Q: When Do I Need To Establish A Retirement Plan?
A: A qualified retirement plan must be installed in writing and communicated to each eligible participant PRIOR to the end of the tax or fiscal year of the employer. This Q & A is designed to give you and your client the general rules that must be followed in order to have a valid (and tax deductible) retirement plan. Click here for more information.
Q: Can I Sponsor More than One Retirement Plan?
A: The Pension Protection Act '06 favorably changed the deduction rules when an employer sponsors multiple plans. Generally, the Act allows a sponsor to fully deduct BOTH a defined benefit plan and a defined contribution plan as long as the latter does not exceed 6% eligible payroll. Employee salary deferrals may also be added above this employer limit. This Q & A provides a detailed analysis of this important issue. Click here for more information.
Q: Should I Get an Employer Identification Number from the IRS?
A: If your current business entity type is a C-Corporation or an S-Corporation, you probably already have an Employer Identification Number (EIN). Oftentimes however, Sole Proprietors and one-person Limited Liability Companies use only their Social Security Number on relevant Tax Forms and do not have a separate EIN. If you do not currently have an EIN for your business entity, one must be applied for and received from the IRS if you intend to sponsor a Qualified Retirement Plan. Click here for more information.
Q: What are the costs involved?
These are client dependant and vary with the services you require. Generally there is an initial setup fee and an annual administrative charge. SAI offers 3 different fee schedules to meet the needs of various business types these include: Qualified Plans, Micro(k) Plans, Non-Qualified Plans.
Q: How Can I Mitigate Risk When Funding a Defined Benefit Plan?
A: You, as the sponsor of a defined benefit or cash balance plan must ensure that the plan is properly funded at all times. The 2006 tax act creates sanctions for plans that are "at-risk." As the defined benefit obligation is fixed by the Plan formula you adopt, it makes sense to consider a guaranteed interest contract (GIC) to fund all or a substantial portion of the plans. Our turn-key program features two GICs that are ideal for use in these plans: 2 Year Auxiliary Fund, 5 Year Auxiliary Fund.
Q: How is My 401(k) Plan's Mutual Fund Platform Priced?
A: A mutual fund is an investment company that continuously offers new equity shares in an actively managed portfolio of securities. All shareholders participate in the fund's gains or losses. The shares are redeemable on any business day at the net asset value. Each mutual fund's portfolio is invested to satisfy the objective as stated in the fund's prospectus. In addition, the prospectus describes the pricing of the fund and the risks of investing in the fund. A mutual fund may have several different share classes reflecting different cost structures, and each of these must also be identified in the fund's prospectus. Click here for more information.
Q: How is My 401(k) Plan's Group Variable Annuity Priced?
A: An annuity is an insurance company product designed to provide supplemental retirement income, in the form of a guaranteed stream of payments beginning at a specified time and lasting for a specified period. Payments to an annuity experience gains and losses during the Accumulation Phase, and are liquidated, or annualized, during the Annuity Phase. Insurance companies offer Fixed Annuities and Variable Annuities on both an individual and a group basis. Click here for more information.
Q: How Much Life Insurance Can I Buy In My Retirement Plan?
A: One compelling advantage of Fully Insured or other defined benefit plans is the ability to fund an enhanced survivor benefit without changing the retirement benefit. Better yet, the marginal cost for doing so may be pennies on the premium dollar. However, life insurance must be kept incidental to the plan. This P & Q summarizes the life insurance incidental rules contained within SAI's prototype and custom documents Click here for more information.
Q: What Tax Issues Must I Understand Regarding Life Insurance
in Retirement Plans?
A: Adding life insurance to a retirement plan is a time-honored strategy for a Plan to provide enhanced survivor benefits on a tax-favored basis. However, before a "qualified" life insurance policy is considered, you should first be familiar with some general compliance and tax issues presented in this brochure Click here for more information.
Plans using life insurance to provide a pre-retirement death benefit must consider the policy cash values as a part of the plan's funding. Click here for more information
