Retirement Planning

2.  There are many plan design options available for tax-
qualified defined contribution and defined benefit
retirement plans.
 Considerations include:
 differences in the nature and size of the workforce
 employee turnover characteristics
 age and length of service disparities between owners/executives and
“rank-and-file” employees
 the willingness of employees to make their own contributions
 amount available each year for contributions by the employer
 ability of the employer to commit to making specific levels of
contributions from year to year
 Internal Revenue Code and IRS nondiscrimination requirements

3.  Examples of plan designs to consider:
 safe harbor 401(k) plan
 “integrated” profit sharing contributions
 new comparability profit sharing contributions
 cash balance defined benefit plan

4.  SAFE HARBOR 401(k)
 Ordinarily, pre-tax contributions (401k deferrals)
made by a “highly compensated employee” (HCE)
from his W-2 pay or his self-employment income
(i.e., his “earnings”) are subject to deferral limit
nondiscrimination testing.
 Although the IRS 401k deferral limit is $18,000 in 2015
($17,500 in 2014), the limit may be reduced if the non-
HCE employees do not contribute enough to allow the
plan to pass the deferral limit nondiscrimination testing.
 In addition to the $18,000 deferral limit, if at least age
50, an additional $6,000 in 2015 ($5,500 in 2014) can be
deferred without being subjected to nondiscrimination
testing.

5.  A safe harbor 401(k) plan is exempt from the
deferral limit nondiscrimination testing, i.e., no
“cutback”.
 Two alternative types of safe harbors:
 Safe harbor non-elective contribution
 The employer contributes 3% of pay for each employee who is
eligible to make a 401k deferral.
 Safe harbor matching contribution
 If an employee contributes 5% of pay, the employer must make a
matching contribution of 4% of pay.
 This generally is 100% of the first 3%, plus 50% of the next 2%.

6.  There are special rules that should be considered as
part of the planning process, for example:
 Should the safe harbor contributions only be made for
employees who have completed a “year of service”, i.e.,
are there part-time employees who do not work at least
1,000 hours per year, who may be permitted to
contribute their own money but may be excluded from
the safe harbor contributions?

7. Hypothetical #1
Employee Compensation Deferral Match Total Cost
($0 for Staff)
HCE A
(50+)
$260,000 $23,000 $10,400 $33,400
Staff B $35,000 $0 $0 $0
Staff C $20,000 $0 $0 $0

8. Hypothetical #2
Employee Compensation Deferral Non-Elective
3%
Total Cost
($1,650 for
Staff)
HCE A
(50+)
$260,000 $23,000 $7,800 $30,800
Staff B $35,000 $3,500 $1,050 $1,050
Staff C $20,000 $2,000 $600 $600

9.  “INTEGRATED” PROFIT SHARING CONTRIBUTIONS
 Employer “profit sharing” contributions can be made to a
401(k) plan, including a safe harbor 401(k) plan.
 The aggregate plan contributions for a HCE can be $53,000
in 2015 ($52,000 in 2014) plus any additional age 50
deferrals ($6,000 in 2015 or $5,500 in 2014).
 If the HCE’s pay or earnings are at least $265,000 in 2015 ($260,000
in 2014) and he maximizes his deferral contributions plus safe
harbor contributions, that may leave as much as $24,400 (if safe
harbor match) or $27,050 (if safe harbor non-elective) available as a
profit sharing contribution.

10.  A traditional plan design allocates profit sharing
contributions pro rata based on each “eligible”
employee’s pay.
 An “integrated” plan design recognizes that the
employer is contributing to Social Security on pay up
to the FICA taxable wage base (“TWB”) ($118,500 in
2015; $117,000 in 2014).

11.  How does integration work?
 The contribution is allocated at the rate of X% of pay to
the integration level (i.e., the “breakpoint”) and at the
rate of Y% of pay (greater than X) on pay in excess of the
integration level.
 IRS regulations set the maximum
contribution/allocation rates based on the breakpoint
which is chosen.

12. Hypothetical #3
Employee Compensation Deferral and
Match
Integrated PS
(e.g., 30%
TWB) (5.55% to
TWB; 9.85%
above)
Total Cost
($4,452 for
Staff)
HCE A $260,000 $23,000
$10,400
$24,100 $57,500
Staff B $35,000 $3,500
$1,400
$1,942 $3,342
Staff C $20,000 $0
$0
$1,110 $1,110

13.  NEW COMPARABILITY PROFIT SHARING
CONTRIBUTIONS
 An alternative to traditional pro rata or integrated
profit sharing contribution allocations.
 Provides an opportunity to maximize
contributions if the HCEs are older, while
minimizing allocations to younger staff.
 Provides flexibility, for example:
 All HCEs do not have to receive maximum
contributions.
 Some rank-and-file employees can receive higher
percentage contributions than others.

14.  What is the theory behind allowing higher contribution
rates for older HCEs?
 For an older plan participant, the contributions will be held and
invested for a shorter time until retirement, therefore, more is
needed for the contribution to be equivalent to that which is made
for a younger plan participant.

15. Hypothetical #4
Employee Age Compensation Total Cost
($5,750 for
Staff)
(401k with
3%safe harbor)
% of Total
Contribution
HCE D 55 $260,000 $57,500
(includes
$23,000 401k)
90.91%
Staff E 60 $45,000 $1,990
(4.42%)
3.15%
Staff F 35 $35,000 $1,548
(4.42%)
2.45%
Staff G 25 $25,000 $1,106
(4.42%)
1.75%
Staff H 25 $25,000 $1,106
(4.42%)
1.75%

16.  CASH BALANCE DEFINED BENEFIT PLAN
 Great opportunity for professionals (and others).
 Depending on the demographics of the group, including
 ages,
 compensation levels, and
 numbers of
 owners/professionals,
 other HCEs, and
 other staff,
it may be possible to design a cash balance plan that
provides for very high levels of "contributions" to the
owners’/professionals’ cash balance accounts.

17.  A cash balance plan may be designed so that the
annual funding "cost" – the contributions – for an
owner’s/professional’s benefits earned under the
plan far exceeds the $53,000 (or $59,000) annual
contribution limit for a defined contribution plan.
 In some cases, it is possible to participate in a
defined contribution plan up to the maximum
$53,000 (or $59,000) level and participate in a cash
balance plan at the maximum benefit level.

18.  Like the new comparability plan design, it may be
possible to have different levels of "contributions" for
different participants, including:
 Older professionals receiving much greater
contributions than younger staff; or
 Selected professionals benefitting much more
significantly than the other professionals and the rank-
and-file employees.

19. Hypothetical #5
 A One-Owner Business with 3 employees plus the
Owner.
 The Owner maintains both a Cash Balance DB Plan
and a 401(k) New Comparability Profit Sharing Plan.
 One of the employees works less than 1,000 hours each
year.

20. AA
58
38
66
30
Amount
199,800
4,120
203,920
Hypothetical #5
Considered Cash Balance 401(k) Safe Profit Sharing Employer % of
Name RA Earnings Amount % of
Earnings
Deferral
65.00% 23,000 7,800 0
Harbor
3%
Amount
0.00% 199,800 97.98%
Total% of Earnings Cost
1,900 9.50% 2,900Office Manager 65 20,000 400 2.00% 0 1.42%
65 15,000 0 0.00% 0 0 0
600
Total Contribution
0.00% 0 0.00%
Considered Cash Balance 401(k) Safe Profit Sharing % of
Earnings Amount % Deferral
23,000 7,800 0 0.00%
Harbor Amount %
Employees 36,261 400 0.24% 0
Owner 260,000 169,000 99.76%
1,088 2,632 100.00%
0.60%
97.98%
Total
2.02%
Totals 296,261 169,400 100.00% 23,000 8,888 2,632 100.00% 100.00%
Staff #2
0.00% 0 488 732 4.50% 1,220
Doctor-Owner
Staff #1 70 16,261 0
65 260,000 169,000

21. Hypothetical #6
 A One-Owner Business with 6 employees plus the
Owner and his spouse.
 The Owner maintains both a Cash Balance DB Plan
and a 401(k) New Comparability Profit Sharing Plan.

22. P O H Class
* * * A
* * C
B
B
B
B
B
B
292,992 100.00%
Employer
Cost
233,856
29,400
3,283
3,204
10.15%
Grand Totals 623,198 210,136 33.7 51,664 18,696 18,160 2.9
14,160 5.0 29,736Non-Principals 283,198 7,080 2.5 5,664 8,496
1.2 263,256 89.85%
Cost Total
Principals 340,000 203,056 59.7 46,000 10,200 4,000
% of
Earnings Amount % of Earnings Deferral Harbor Amount % of Earnings
Total Contribution
Considered Cash Balance 401(k) Safe Profit Sharing Employer
1.69%
Legend: P- Principal, O- Owner, H- Highly Compensated Employee
CONTRIBUTION REPORT - SUMMARY
1,418 2,363 5.0 10.50%4,962
Last Name
OWNER
SPOUSE
STAFF 1
STAFF 2
46 47,260 1,182 2.5 945STAFF 6
5.034,510 863 2.5 690 1.24%3,624
STAFF 3
STAFF 4
STAFF 5
2.70%
34
6,756
1,035 1,726
2,259 3,765 5.0 10.50%
10.50%
7,90634 75,299 1,882 2.5 1,506
5.01,930 3,217 10.50% 2.31%
1.09%
49 64,347 1,609 2.5 1,287
916 1,526 5.0 10.50%47 30,517 763 2.5 610
5.0 10.50% 1.12%
10.03%52 80,000 0 0.0 23,000
32 31,265 782 2.5 625
79.82%
Total
1,563
2,400 4,000 5.0 36.75%
938
57 260,000 203,056 78.1 23,000 7,800 0
Harbor Amount % of Earnings % of
Earnings
0.0 89.94%
% of
AA Earnings Amount % of Earnings Deferral
Total Contribution
Considered Cash Balance 401(k) Safe Profit Sharing
Hypothetical #6
Combination Cash Balance/401(k) Profit Sharing Plan
For the Plan Year 01/01/2014 - 12/31/2014
CONTRIBUTION REPORT - DETAIL

23.  Actuarial Consulting Services, Inc., 200 John James
Audubon Parkway, Suite 100, Amherst, NY 14228, (716)
691-2181 ext. 103
 Mark E. Brand, Esq. (mbrand@acsi-ny.com)