Trends in Retirement Plans

TYPES OF RETIREMENT PLANS

We'll be discussing 2 basic categories of retirement plans:

• qualified plans
• AND
• non-qualified plans

Qualified Plans

A qualified retirement plan is an employer-provided plan intended to enable employees to save for retirement.

There are definite tax advantages to qualified retirement plans, since employer contributions to qualified plans are tax deductible. Also, employees don't have to report employer contributions until they receive them. Taxation occurs when employees begin receiving benefits.

Although qualified plans are secured, they must also adhere to strict rules to meet Internal Revenue Service (IRS) requirements.

The benefits

Qualified plans can provide the following benefits to your organization and employees:

• attract new employees
• increase employee retention
• increase employee interest in organization success
• allow tax deductions for administrative costs and contributions
• provide employees with an improved retirement lifestyle

Types of plans

There are 2 basic types of qualified plans:

• defined contribution plan
• defined benefit plan

We'll take a look at both of these plans in a future section.

Non-Qualified Plans

Primarily offered to high-level executives, non-qualified plans enable you to give your top management a replacement income upon retirement. The replacement income is directly related to their compensation packages.

Unlike qualified plans, non-qualified plans aren't tax-deductible. They're called "non-qualified" plans because the IRS doesn't officially recognize them. They're unsecured and risky. However, they're not generally subject to the requirements of the Employee Retirement Income Security Act of 1974 (ERISA), as discussed in the next section. And, you don't have to deal with limitations on benefit or contribution amounts.

Non-qualified plan uses

Non-qualified retirement plans are often used to:

• motivate highly paid employees or specific management groups
• postpone benefit payment

Non-qualified plans can be beneficial if:

• the employer doesn't have a qualified retirement plan
• employees prefer to invest their tax dollars
• employees want or need help saving for retirement
• the organization wants to increase employee retention
• employees don't have to have income from the plan right away

Each category, qualified and non-qualified, holds a wide range of retirement plan possibilities for employers and employees. We'll take a closer look at those possibilities in the later sections.