401(k) plans for employers
At the Pedersen Investment Group, we provide our corporate clients with a retirement plan that contains the highest level of investment management, record keeping, trustee and employee education services in the marketplace. Our team is dedicated to finding, implementing and servicing retirement benefit plans for corporations and their respective employees. By managing our clients’ retirement plans, we free up critical time and resources so they can focus their efforts on growing their business.
Is a cash balance plan right for your company?
If you offer your employees a 401(k) plan, adding a cash balance plan—a pension plan in which you would credit a participant's account with a set percentage of his or her yearly compensation—might be a smart strategy for you. This type of account provides one of the highest contributions and tax deductions available and heavily favors the owners or key employees.
The employer decides the percent of contribution for each employee based on the the number of employees (usually at least eight), their ages, compensation and employee classes. Cash balance plans work especially well where owners or key employees are more advanced in age. Consider the following example:
Summary of contributions
| Employee | Age | Compensation | Employee 401(k) elective deferral | 401(k) catch up contribution | Employer 3% safe harbor contribution | Employer profit sharing contribution | Employer cash balance contribution | Total | Contribution as a % of total |
| Owner | 60 | $265,000 | $18,000 | $6,000 | $0 | $35,000 | $237,286 | $296,286 | 90.88% |
| Employee 1 | 55 | $55,000 | $0 | $0 | $1,650 | $2,475 | $1,250 | $5,375 | 1.65% |
| Employee 2 | 50 | $50,000 | $0 | $0 | $1,500 | $2,250 | $1,250 | $5,000 | 1.53% |
| Employee 3 | 45 | $45,000 | $0 | $0 | $1,350 | $2,025 | $1,250 | $4,625 | 1.42% |
| Employee 4 | 40 | $40,000 | $0 | $0 | $1,200 | $1,800 | $1,250 | $4,250 | 1.30% |
| Employee 5 | 35 | $35,000 | $0 | $0 | $1,050 | $1,575 | $1,250 | $3,875 | 1.19% |
| Employee 6 | 30 | $30,000 | $0 | $0 | $900 | $1,350 | $1,250 | $3,500 | 1.07% |
| Employee 7 | 25 | $25,000 | $0 | $0 | $750 | $1,125 | $1,250 | $3,125 | .96% |
| Total contribution | | | $18,000 | $6,000 | $8,400 | $47,600 | $246,036 | $326,036 | 100% |
Summary of tax savings
| Total contribution for owners | $296,286 |
| Total contribution & deduction | $326,036 |
| Less: estimated tax savings | $146,716 |
| Net cash paid out | $179,320 |
| Owner's contribution paid by tax savings | $116,966 |
Not only is the owner receiving a contribution of $237,286 by only paying out a net cash amount of $179,320, the other employees are receiving contributions totaling $29,750 without any additional cash outlay.
If you would like to learn more about employer-sponsored retirement plans, cash balance plans or how our team can be of service to you, please contact us today.
