An easy retirement plan guide for small employers

Safe Harbor 401(k)

• Can be set up by any employer other than a state or local government entity
• Participant's retirement benefits based on participant’s account balance
• Allows employees to contribute to their own retirement through salary deferrals, up to $17,000¹ and an additional $5,500¹ if age 50 or older
• Employer is required to make annual minimum contributions
• The maximum combined employer and employee contributions are the lesser of 100% of an employee’s compensation or $50,000¹ or more if catch-up contributions
• May exclude certain employees from coverage as long as annual coverage tests are met
• More complex to set up and operate
• Annual return could be required
• Some annual nondiscrimination testing could be required
• Greater design flexibility
• Plan may allow loans and hardship withdrawals
• Immediate vesting in full account balance

401(k)

• Can be set up by any employer other than a state or local government entity
• Participant's retirement benefits based upon participant’s account balance
• Allows employees to contribute to their own retirement through salary deferrals, up to $17,000¹ and an additional $5,500¹ if age 50 or older
• Although not required, the employer can contribute to an employee’s retirement account
• The maximum combined employer and employee contributions are the lesser of 100% of an employee’s compensation or $50,000 ¹ or more if catch-up contributions
• May exclude certain employees from coverage as long as annual coverage tests are met
• More complex to set up and operate
• Annual return usually required
• Must usually satisfy annual nondiscrimination testing
• Greater design flexibility
• Plan may allow loans and hardship withdrawals
• Immediate vesting in employee's own contributions

Profit-Sharing

• Can be set up by any employer
• Participant's retirement benefits based upon participant’s account balance
• Can include a feature allowing employees to contribute to their own retirement through salary deferrals, up to $17,000 ¹ and an additional $5,500¹ if age 50 or older
• The employer can decide each year whether and how much to contribute
• The maximum annual contributions are the lesser of 25% of an employee’s compensation or $50,000¹ or more if catch-up contributions
• May exclude certain employees provided annual coverage tests are met
• More complex to set up and operate
• Annual return usually required
• Must usually satisfy annual nondiscrimination testing
• Greater design flexibility
• Plan may allow loans and hardship withdrawals
• May delay vesting of employer contributions

¹Dollar limits are for 2012 and are subject to cost-of-living adjustments for future years.