Retirement plans are complex and can be confusing to navigate. This challenge can be magnified when you are just getting started and don’t know what you don’t know. Not to worry – we have outlined below the main elements that need to come together to setup a Retirement plan for your Association and be sure it is designed the way you want it to be:
Retirement plans are setup and governed by what is known as a “Plan Document.” The plan document simply outlines the framework for how the plan will function and how employees will participate. There are many sections in this document and it’s easy to get confused, so below is an outline of the most significant parts and what you’ll need to answer in order to tailor the plan to your Association:
How do you want your employees to benefit from the retirement plan?
Not unlike other benefits you can offer to an employee, you start designing a retirement plan by detailing the “eligibility criteria” that needs to be met to allow your employees to participate. Things such as age, minimum required hours, any waiting period before they can start saving, are some of the components to this. The goal is to make the plan as favorable to employees as you can so that they can experience its value early in employment.
Is your Association going to contribute any money
to the plan on behalf of your employees?
This next component may be the most important section of your plan document because when designed the right way, it accomplishes two important things:
- It can allow you to generously support your employees’ retirement success by allowing you to contribute additional funds from the Association in addition to the amount they save themselves. The two main categories for employer contributions are “matching” and “profit sharing.”
- The right design can also ensure your retirement plan satisfactorily passes the yearly plan testing that all plans must undergo. Qualified Retirement plans are regulated on the basis of “fairness” and should not be designed to favor certain employees above others. The tests that can cause issues are called ADP/ACP and Top-Heavy tests that measure employee contribution levels across the employee population weighed against compensation. Failing either one of these tests can not only prove costly but may require contributions to be “backed out” triggering taxes and hindering certain participants from saving effectively. However, if you decide to design the plan as a Safe Harbor Plan, that ensures the plan will pass both of these tests each year.
If you need help navigating these plan design elements for your Association it’s a good idea to work with an advisor or broker that specializes in retirement plans and can advise you on your various options.