Question

Create a recommendation for a new client wishing to adopt a retirement plan, providing support for why you believe this is perhaps the best plan.

The new client is a US-based subsidiary of a German pharmaceutical firm. It began hiring US-based employees less than a year ago and currently has about 35 hired. The firm is finding it challenging to compete with larger companies here in the US without offering benefits similar to those larger firms such as retirement plans. The CFO of the firm has come to you and is giving you the following fact set in addition to the above:

• Anticipate hiring another 70 employees in the next 24 months,
• they would like a very high degree of latitude with respect to company contributions,
• they are willing to make a commitment to low-level contributions at this time however only for those employees who are contributing themselves,
• currently half of their workforce, and within 24 months still about one third of their workforce is anticipated to make more than $130,000 a year in compensation

Answer 1

Ans : PLEASE GV A RATING IF U LIKE MY EFFORTS , IT WILL KEEP US MOTIVATED. THANK YOU in advance

Retirement plans are a valuable benefit that impacts the present and future lives of employees. Because offering retirement benefits can be complicated, the best approach is understanding the pros and cons of offering retirement plan benefits, the types of retirement plan choices and the goals we want to accomplish as an employer offering retirement benefits, for our employees, our business and ourself.

Offering retirement benefits is a great way to enhance the benefits piece of our compensation package. Employees are encouraged to save for retirement through plans set-up at work because it's easy to do. However, there are also some definite disadvantages to offering retirement benefits to employees.

The following are some of the pros of offering retirement benefits:

1)We can receive some significant tax advantages for our business because Govt. wants to encourage employers to provide retirement benefits to employees.

2)If the plan is based on profits, the plan may enhance employee motivation and productivity.

3)Retirement benefits may give us a recruiting advantage.

4)If our business has high start-up costs or little cash on hand, we can use a retirement plan to supplement our compensation package.

5)Again, we can use the plan to save for our own retirement.

Some disadvantages of retirement plans :

1)Setting up and administering a plan can be time-consuming, complicated, and costly.

2)Providing a plan can (and most likely will) require professional assistance, which can be expensive.

To quote Joe Lineberry, a senior vice president at Aon Consulting, a human resources consulting firm - "Give employees the benefits they value, and they'll be more satisfied, miss fewer workdays, be less likely to quit, and have higher commitment to meeting the company's goals," "The research shows that when employees feel their benefits needs are satisfied, they're more productive."

Benefit Basics

The law requires employers to provide employees with certain benefits. We must:

1. Give employees time off to vote, serve on a jury and perform military service.

2. Comply with all workers' compensation requirements.

3. Withhold FICA taxes from employees' paychecks and pay our own portion of FICA taxes, providing employees with retirement and disability benefits.

4. Pay state and federal unemployment taxes, thus providing benefits for unemployed workers.

5. Contribute to state short-term disability programs in states where such programs exist.

6. Comply with the Federal Family and Medical Leave (FMLA).

Although we are not required to provide these but in reality ,however, most companies offer some or all of these benefits to stay competitive :

a. Retirement plans

b. Health plans (except in Hawaii)

c. Dental or vision plans

d. Life insurance plans

e. Paid vacations, holidays or sick leave

Most employers provide paid holidays for New Year's, Memorial Day, Independence Day, Labor Day and Thanksgiving day and Christmas day. Many employers also either allow their employees to take time off without pay or let them use vacation days for religious holidays.

Understanding Retirement Plan Basics

All pension plans are either qualified plans or non-qualified plans.

Qualified plans meet the requirements of the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code and qualify for significant tax benefits:

Ø The income generated by the plan assets is not subject to income tax, because the income is earned and managed within the framework of a tax-exempt trust.

Ø An employer is entitled to a current tax deduction for contributions to the plan.

Ø The plan participants (the employees or their beneficiaries) do not have to pay income tax on the amounts contributed on their behalf until the year the funds are distributed to them by the employer.

Ø Under the right circumstances, beneficiaries of qualified plan distributions are afforded special tax treatment.

Non-qualified plans are those not meeting the ERISA guidelines and the requirements of the Internal Revenue Code. They cannot avail themselves of the preferential tax treatment. Non-qualified plans are usually designed to provide deferred compensation exclusively for one or more executives.

Retirement plans are further divisible into the broad categories of defined benefit and contribution plans, and hybrid plans.

Because of their tax-advantages, most business owners choose to offer a plan that is qualified as an employee benefit.

MAJOR TYPES OF RETIREMENT PLANS

Various types of retirement plans are available to business owners. The major ones include the following :

i. Simplified employee pension (SEP) plans

ii. Savings incentive match plan for employees (SIMPLE) IRA plans

iii. Qualified plans

iv. 401(k) PLANS

i. Simplified employee pension (SEP) plans

SEPs can be used by businesses with any number of employees. Contributions are made by the employer only (up to the lesser of 25% of each qualified employee's compensation or $55,000 for 2018) and are tax-deductible as a business expense. The primary advantage of SEP plans is how simple they are to administer. After adoption, no annual IRS forms generally need to be filed for a SEP, and administrative costs are minimal.

However, SEPs do not allow employees to defer income, and employees are always 100% vested in employer contributions to their SEPs. Therefore, they may not be the best choice for companies in industries with high employee turnover or that want to use a retirement plan to help retain employees. Another potential drawback to these plans is that they require the employer to make contributions at the same percentage to all eligible employees.

ii. Savings incentive match plan for employees (SIMPLE) IRA plans

SIMPLE IRAs are generally available to businesses with 100 or fewer employees who received $5,000 or more in compensation in the preceding year. These plans are funded by tax-deductible employer contributions and pretax employee contributions.

A potential advantage to an employer of a SIMPLE IRA plan over a SEP is that it generally requires a smaller contribution on the employer's part. An employer must match each employee's salary reduction contribution dollar-for-dollar up to 3% of the employee' compensation or make a nonelective contribution of 2% of an eligible employee's compensation (up to $275,000 for 2018), regardless of whether the employee makes a salary reduction contribution.

As with SEPs, though, employees are always 100% vested in employer contributions to SIMPLE IRAs, so they may not be the best choice for companies in industries with high turnover.

iii. Qualified plans

Qualified plans are more complex. Larger businesses generally have the staff and infrastructure to accommodate the required reporting of a qualified plan. There are several types of qualified plans, which can be broken down into two broad categories: defined benefit and defined contribution plans.

a) Defined benefit plans. Commonly referred to as pension plans, defined benefit plans promise to pay employees a steady income stream at some point in the future. The amount each employee receives is most commonly based on earnings history and length of service. Employers must contribute enough to the defined benefit plan each year to satisfy what's known as a minimum funding requirement. Due to the complexity of the minimum funding calculation and other requirements, administration of a defined benefit plan usually requires professional assistance from an actuary.

b) Defined contribution plans With defined contribution plans, employers contribute into individual accounts for each employee. Employees generally have the authority to invest the money as they see fit among the investment options provided by the plan. Defined contribution plans do not require immediate vesting of amounts contributed to the plan by employers and may allow employee loans.

Types of defined contribution plans include profit sharing plans and money purchase plans. Under a profit sharing plan, an employer's contributions are discretionary, so the employer is not required to make contributions to the plan each year. Under a money purchase plan, contributions are mandatory, so the employer must make a contribution to the plan each year, and the contribution percentage used to determine the contribution amount for each year cannot vary.

iv. 401(k) PLANS

Profit sharing plans can include a 401(k) feature (also known as a cash or deferred arrangement, or CODA) under which the employees participating in the plan can choose to have a portion of their pretax compensation contributed to an individual account rather than receive the compensation in cash. These contributions are called "elective deferrals" because the employee elects to defer the receipt of the amount contributed to the account. A profit sharing plan with a 401(k) feature is popularly referred to as a "401(k) plan.

For 2018, participants in a 401(k) plan can make elective deferrals of up to $18,500 ($24,500 for participants who are age 50 or over at the end of the calendar year). If the plan permits, employers can contribute a percentage of each employee's compensation to the employee's account (a nonelective contribution) or can, within certain limits, match the amount of employees' elective deferrals or do both. Total employer and employee contributions to a 401(k) plan are limited to the lesser of:

Ø 100% of the employee's compensation, or

Ø $55,000 (for 2018).

A 401(k) plan can be designed so that employees' ownership in employer matching or nonelective contributions becomes vested over time, subject to a vesting schedule. After the vesting period for a contribution is completed, the employee is 100% vested in the employer contributions and has a nonforfeitable right to the full amount of the contributions in his or her account. Providing for vesting of employer contributions to a retirement plan may help an employer retain valued employees.

Under a graded vesting schedule, an employee vests in employer contributions incrementally over a period of years. Many plans use a five-year vesting schedule, with the employee vesting in 20% of employer contributions per year of service, with the employee being 100% vested in the contributions at the beginning of year 6.

So , according to my suggestion the co should go 401(k) plans as is considerably suits the companies requirement.