Pension Plans

There are many types of pension plans that can be set up by employers.

Profit - Sharing Plans are highly popular because they offer the employer the most flexibility when it comes to making contributions. Contributions may be determined by a predefined formula written into the plan or at the discretion of the board of directors or governing body. These contributions for example can be dependent on company profits or only at a minimum profit level. Plan contributions are generally allocated to employees as a percentage of compensation. The amount of benefits an employee will receive depends on many factors including: company's profits, number of years an employee has participated, the investment performance of the plan, and the amounts forfeited by employees who leave before becoming entitled to the full value of their accounts.

Money-Purchase Plans generally require employers to contribute a specified percentage of each participating employee's compensation, regardless of company profits. The employee's retirement benefits therefore, is determined by the balance of their account. As with profit-sharing plans, the account balance depends on the employee's years of service, the amount of contributions that they company has made and the investment performance.

Many companies offer a money-purchase plan in conjunction with a profit-sharing plan. What are the advantages of sponsoring two plans? One, the company may be able to make higher deductible contributions that it could with only a profit-sharing plan. Two, they're not locked into making a high contribution when profits are low.

In addition to these two types of pension plans, there are also additional types such as Defined-Benefit Pension Plans, Simplified Employee Pensions (SEPs), Savings Incentive Match Plans (SIMPLE) and Employee Stock Ownership Plans (ESOPs). As a business owner, you probably have some idea of which type of plan you'd like to offer your employees. But how can you be sure that is the best plan for your company? Who should design the plan? How do you go about implementing a plan? What about securing IRS approval? Let your Lincoln Financial Advisor Representative assist you in implementing your Pension Plan.