I love cookies.  Store-bought are OK, bakery cookies are better, but I really like to make my own.  That way I can add what I want, bake them either chewy or crunchy, and really make them perfect.

 

How is your retirement plan like a cookie? Is your plan on a prototype document with very few choices, or are the customizable options fairly open?  Having flexibility with respect to your plan design is the difference between store-bought and homemade cookies.

 

• Eligibility – Waiting periods, entry dates, employee classifications are all customizable provisions in a customizable document.  You may be able to offer different eligibility waiting periods for employee vs. employer contributions too. How could your plan be helped if eligibility were restricted?
• Compensation – Typically a prototype document only allows you to use total (W-2) wages in the formula for computing contributions to the plan.  If you want to exclude bonuses, overtime, commissions or fringe benefits, a customizable document is required.  How much could these compensation adjustments save in contributions each year?
• Contributions may be required under some prototype plans to include anyone who works more than 3 months in a year.  Customizable documents allow exclusion of employees who are not working on the last day of the plan year, or those who worked less than 1000 hours during the year.  As one Plan Sponsor put it “no contributions for quitters!”
• Many prototypes only offer basic pro-rata contribution formulas.  Tiered allocation and age-weighted formulas are available in customizable documents.  The more sophisticated formulas can drastically change the split of the contribution between the owners and the staff people of the company. 

 

So while you may offer a plan to your employees, is it like having a store-bought cookie in the cabinet?  Could your plan be better?  Could it offer you more flexibility to dial in what you want the plan to provide? 

 

Sure getting a customized retirement plan is a little more work, and it may cost a little more.  But the benefits that it can provide will far outweigh the additional effort and expense.