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PIAM
can help you develop effective employee benefit programs that include pensions,
profit sharing, 401(k), and 403(b) plans.
Defined Benefit Pension
A defined benefit pension normally provides
a specific
monthly benefit from the time you retire until you die. This monthly benefit
is usually a percentage of your final salary multiplied by the number of
years you’ve been with the company. Defined benefit pensions are
usually funded completely by your employer.
Money Purchase Pension
A money purchase pension provides
either a lump-sum
payment or a series of monthly payments. The size of this benefit depends
on the size of the contributions to the plan. Your employer normally
funds money
purchase pension plans, although some will allow employee contributions.
Profit-Sharing Plan
Your
employer funds a profit-sharing plan; employee contributions are usually
optional. Upon your retirement, you will normally receive your benefit
as a lump sum.
The company’s contributions — and thus your retirement
benefit — may
depend on the company’s profits. If a profit-sharing plan is
set up as a 401(k) plan, employee contributions may be tax deductible.
Savings Plan
A
savings
plan
provides a lump-sum payment upon your retirement. The employee funds
savings plans, although employers may also contribute. Employees
may be permitted
to borrow a portion of vested benefits. If a savings plan is set
up as a 401(k)
plan, employee contributions may be tax deductible.
ESOP
Under an employee
stock ownership plan (ESOP), an employer periodically contributes
company stock
toward an employee’s retirement plan. Upon retirement, employee
stock ownership plans may provide a single payment of stock shares.
Upon reaching
age 55, with
10 or more years of plan participation, you must be given the option
of diversifying your ESOP account up to 25 percent of the value.
This option
continues until
age 60, at which time you have a one-time option to diversify up
to 50 percent of the account.
403(b) Plans
Tax-sheltered annuities or 403(b)
plans are
offered
by tax-exempt
and educational organizations for the benefit of their employees.
Upon retirement, employees have a choice of a lump sum or a series
of monthly
payments. These
plans are funded by employee contributions, and these contributions
are tax deductible.
IRAs
Individual retirement accounts are available
to virtually
any wage
earner at any salary. They are funded completely by individual
contributions. IRAs are usually held in an account with a bank,
brokerage firm,
insurance company, mutual fund company, credit union, or savings
association.
They provide either a lump-sum payment or periodic withdrawals
upon retirement.
There are
two basic types of IRAs: traditional and Roth. Contributions
to traditional IRAs may be tax deductible and are taxed upon withdrawal,
whereas
contributions to Roth IRAs are not tax deductible but qualified
withdrawals are tax-free.
Keough Plans
Keogh plans were specifically designed for self-employed people.
They are funded completely by wage-earner contributions and
provide either
a lump-sum
payment
or periodic withdrawals upon retirement. Keogh plans have the
same investment opportunities as IRAs. Contributions to Keogh plans
are tax deductible
within certain generous limitations.
SEPs
Simplified employee pensions,
or SEPs, were designed
for small businesses. Like IRAs, they can provide either a lump-sum
payment or periodic withdrawals upon retirement. Unlike an IRA,
the employer
primarily funds them, although some simplified employee pensions
do allow employee
contributions. SEPs are usually held in the same types of accounts
that hold IRAs. Employee
contributions — in those SEPs that allow them — may
be tax deductible.
SIMPLE Plans
Savings Incentive Match Plans for Employees,
or SIMPLE
plans,
were designed
for small businesses. They can be set up either as IRAs or as deferred
arrangements — 401(k)s.
The employee funds them on a pre-tax basis, and employers are required
to make matching contributions. Principal and interest grow tax
deferred.
Annuity Contracts
Strictly
speaking, annuity contracts are not qualified retirement plans.
But they do
provide tax-deferred growth like qualified retirement plans.
They are also subject to withdrawal conditions very similar to qualified
retirement
plans,
but there are no contribution limits. They can be used very effectively
to supplement your employer-provided retirement plan.
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