Defined Contribution Plans

You can choose from the most popular, flexible retirement plans

DC Plan Overview

  • Employer/Employee contributions and employee distributions are defined
  • Contribution limits, tax deduction limits, and other factors can change annually
  • Future retirement benefits cannot be predicted due to variability
  • Individual employee accounts can grow via contributions, investment earnings, and, in some cases, forfeitures
  • Employees can contribute on a before- and/or after-tax basis in some plans
  • Employer account balances may be subject to a vesting schedule
  • Non-vested account balances of former employees can be used to reduce employer contribution or can be allocated to active participants

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  • Generally the most flexible qualified plan
  • Company contributions (if any) are discretionary and decided annually
  • Contributions are usually allocated in proportion to compensation and may be affected by social security, resulting in larger contributions for higher-paid employees
  • Amounts contributed to the plan accumulate tax deferred and are distributed to participants after a fixed number of years or upon a specific event such as retirement, disability, death, or termination of employment
Age-Weighted Profit Sharing Plans
  • May use an allocation formula that considers each employee’s age and compensation, resulting in significantly larger allocations to employees closer to retirement age
  • Combine the flexibility of a profit sharing plan with the ability of a pension plan to provide benefits in favor of older employees
  • The most popular type of retirement plan today
  • Employees can benefit even if the employer makes no contribution
  • Employees can voluntarily elect to make pre-tax contributions through payroll deductions up to an annual maximum limit
  • May permit employees age 50 and older to make additional "catch-up" contributions, up to an annual maximum
  • Employee contributions are 100% vested at all times
  • May permit employees to make after-tax Roth contributions through payroll deductions instead of pre-tax contributions to receive tax-free distributions
  • Employers often match some portion of the amount deferred by the employee in order to encourage greater employee participation
  • This is a type of profit sharing plan, so profit sharing contributions may be made in addition to, or instead of, matching contributions
  • Hardship withdrawals and borrowing from the plan is often possible
  • Employee and employer matching contributions are subject to special nondiscrimination tests
401(k) Safe Harbor Plans
  • Can be designed to eliminate nondiscrimination testing, which allows Highly Compensated Employees to defer up to the annual limit without concern for how much Non-Highly Compensated Employees defer
  • Usually profit sharing plans that are tested for nondiscrimination as though they were defined benefit plans — certain employees may receive much higher allocations than would be permitted by standard nondiscrimination testing
  • Generally utilized by small businesses to tailor contribution amounts for specific employees
  • Employees are divided into groups based on business classifications, e.g., owners and non-owners. Each group may receive a different contribution percentage

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