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QUALIFIED PENSION AND PROFIT SHARING PLAN DESIGN
Qualified pension and profit sharing plans are employer initiated and maintained plans designed to provide definitely determinable retirement benefits to employees. While pension plans are prohibited from providing temporary disability or medical expense benefits, they are permitted to offer incidental death benefits and disability retirement benefits.
PENSION PLANS
Defined Benefit Plans
A defined benefit retirement plan, as its name implies, specifies the exact monthly retirement benefit the employee will receive. Generally, this benefit is calculated based on a percentage of salary multiplied by years of service. The cost of the plan is determined by the ages, salaries and longevity of the employees; and most, if not all, of the cost is born by the employer.
Defined Contribution Plans
For those employers that want a definitely determinable cost for their pension plans, a defined contribution plan is the answer. Instead of funding for a specified future benefit amount, the employer's annual contribution to the plan is fixed. At retirement, the employee's benefit is determined by the amount that has accumulated within the plan.
The employer's contribution is generally based on a percentage of the
employee's compensation, so higher-paid employees will accrue greater
benefits. The employer's contribution to a defined contribution plan may
not be related to profits. 
PROFIT SHARING PLANS
Profit sharing plans are designed to permit an employer to share profits with employees. The plan need not include a formula for the amount of profits to be shared. However, in the absence of a formula, there must be recurring, substantial contributions to the plan. The contributions may not be timed so that the plan in operation discriminates in favor of highly compensated employees.
The plan must provide a definite, pre-determined formula for allocating contributions between participants and for distributing the accumulated funds. Contributions are generally allocated based on compensation, but it is permissible to use other factors such as age or length of service. The plan must not provide for pre-determined benefits.
401(k) Plans
A 401(k) plan is a type of profit sharing plan. Contributions are made according to a "cash or deferred arrangement" under which the participant may elect to receive cash or to have that amount deferred under the plan. These elective deferrals are pre-tax and are treated as employer contributions to the plan.
401(k) plans may be stand-alone (funded exclusively with participant deferrals) or may provide for ordinary employer contributions. Typically, the employer agrees to match all or part of the employee's deferral.
OTHER EMPLOYER SPONSORED PLANS
457 Plans
A 457 plan is a form of deferred compensation available to employees of tax-exempt entities including states, counties, cities, and political subdivisions and agencies that allow employees to defer receipt of a portion of their pretax pay in a retirement account. That amount is set aside and the investment earnings grow tax-deferred until withdrawn.
Securities and advisory services offered through Ameritas Investment Corp. (AIC), member FINRA/SIPC. AIC and Rosenbaum Financial LLC are not affiliated. Licensed for insurance sales in CA, OR and WA. Licensed for securities sales in OR. This is not intended as an offer of services or a solicitation of sales in any jurisdiction where we are not licensed or the products described are not available.