The Inefficient Retirement Plan Design

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The design of your company qualified retirement plan should be periodically reviewed to assure plan efficiency and compliance with new regulations.

Inefficient plan design wastes money because it either makes less cost effective contributions or it doesn’t maximize tax deductible contributions to highly compensated employees. So it either wastes money in unnecessary contributions or is inefficient for tax savings.In terms of wasting money, it could be a defined benefit plan that has outlived its usefulness or it could be a 401(k) plan with a new comparability plan design and a safe harbor matching contribution (because unlike a safe harbor 3% profit sharing contribution, you cannot use the safe harbor matching to offset any new comparability contributions to non-highly compensated employees like you could with the safe harbor 3% profit sharing contribution). A plan that doesn’t maximize contributions could be a 401(k) plan that consistently fails discrimination testing and doesn’t implement a safe harbor plan design or a plan that doesn’t offer a new comparability profit sharing allocation to highly compensated employees when the plan sponsor can afford it.

Retirement plans are a great employee benefit for retirement savings, but you should never forget the tax savings component it has.

Proper plan design is critical to the success of all qualified retirement plans. If your goal is to attract and retain talented employees a top quality benefit package is necessary.

Please comment or call to discuss how this affects you and your company.

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