Plan Design Guide FAQs

Whether you’re reducing or increasing the number of employees, the plan should be regularly reviewed for pitfalls. Increasing employees will eventually lead to an annual audit requirement if it’s not caught in time and will cause a regular increase in staff contributions to the plan in the meantime. If your company reduces its number of employees by a significant amount all at once (like closing a plant or satellite office) may cause a “partial plan termination” which may immediately vest everyone affected. If you’re slowing down the number of staff, opportunities for additional contributions may present themselves. Either way, let your TPA know your trajectory and see how they can help!

Family members can do a lot to add to the contribution options available to the plan. Unless the family member is a sibling of the owner, the plan can become a more effective tool to improve retirement benefits for the owner and maybe even create a way to transition ownership! If the plan is designed appropriately, family members often are a blessing for required retirement plan testing—bring them on!

As a business owner, you are regularly reviewing your compensation to make sure you’re not paying more in taxes than is absolutely necessary. If your company is structured as an S-Corp or (LLC taxed as one), only your compensation taken through payroll will be eligible income for plan purposes. A small W-2 makes it more difficult to pass every applicable test for retirement plans; your deferrals represent a larger percentage of your income and your contributions as a percentage of salary go down. This doesn’t mean you can’t take any pass-through income or distributions from the company, but allowing your TPA to be included in the conversation doesn’t hurt and can often add a lot of value to your overall planning.

The outside business interests any owner of or partner in a company may result in the formation of what’s called a “controlled group.” Businesses determined to be a part of a controlled group creates the equivalent of a single employer for retirement plan purposes to avoid the owners spinning of a separate organization and setting up a plan where only they are allowed to participate. The allocation of ownership interest plays an important role, here, and needs to be evaluated by an expert like BRI prior to operating a qualified plan where other interests may exist.

The only required distribution option for a qualified plan is that a participant must be able to withdrawal their balance after reaching the normal retirement date defined by the plan of 65 with 5 years of service. That’s it. Other options exist, of course, and include hardship, in-service, loans, disability, death, and severance of employment, but they are not required and may complicate the day-to-day administration of the plan. On the other hand, it’s important to know that some employees may quit their job if they need the money bad enough and they have no other access to it. The trade-off is ease of administration versus employee satisfaction and while it might seem boring, it’s a really important consideration!