Retirement plans include benefits that make available tax
advantages for both the employer and the employees. They also help draw and keep
hold of desirable employees.
By means of retirement benefits offered by competing organizations,
we can determine the whether the retirement plan should be adopted or not.
Employers must select the type of plan after deciding to
establish a retirement plan, make a decision on how contribution and benefits
for each employee are to be determined and choose suitable plan features. The
plan for the installation can then proceed as follows.
- A
written plan document reflecting the options discussed above must be
prepared. By the end of the tax year, it must be adopted for which the
first contribution is made.
The plan may be submitted to the Internal
Revenue Service based on various factors to obtain its approval as to
whether it satisfies the requirements for favorable tax treatment.
- The
plan must be for the exclusive benefit of plan participants. They must
receive written material concerning the plan, together with a Summary Plan
Description, which describes the plan thoroughly.
The employer has
fiduciary exposure regarding the plan and must not engage in any actions
in which there is self-dealing or a conflict of interest.
In the acceptance of a retirement plan, employers should
exercise care. They should know about their obligations prior to the adoption
of a plan.
These include the responsibility to make the required plan
contributions, monitor and oversee the plan's investments, meet all
governmental reporting requirements and communicate with and periodically
report to employees concerning the plan's operation.
Employers are provided with retirement plans by many
organizations. Particularly, they can be divided into two groups: those that
are compensated strictly on a fee basis and those that sell a product, for
example life insurance or mutual funds that are used as plan investments.
When
dealing with the latter, employers should work out care since their agents,
often receive substantial commissions for the sale of the product but do not
have the knowledge required to design or manage the best plan.
In establishing
and maintaining plans, it is advisable for employers to use fee-based retirement
plan specialists.
How to Terminate Your Retirement Plan?
A retirement plan must
be considered by the IRS to be a permanent arrangement for the exclusive
benefit of employees to maintain its favorable tax status.
Without compelling
business requirement if it is abandoned within a few years, it may come across
difficulties. Due to various reasons, retirement plans are terminated.
Employers should think
about reducing or suspending contributions, before a plan is terminated if they
are experiencing financial difficulties. Possible negative repercussions from
employees should be considered prior to termination if the plan has not worked
as expected.
If the paperwork has become too troublesome, employers should think
about redesigning the plan to make it easier to manage, using further help or
outsourcing the retirement plan function.
When terminating a
retirement plan, certain administrative tasks must be performed.
These comprise
the adoption of a resolution concluding the plan, the amendment of the plan
document to obey the laws effectively at the time of plan termination, the
submission to the IRS for appreciation of the plan's termination (optional) and
the benefits calculation payable to the plan's contributors.
It should be noted
that at plan termination, all plan benefits become fully vested. Defined benefit plans
often pose special problems with plan termination. For most of these plans, the
Pension Benefit Guaranty Corporation must approve terminations.
The extent of
the participation of the PBGC depends upon how well the plan is funded. The
PGBC will first look to the employer to satisfy the payment of benefits
guaranteed by them, although the PBGC insures underfunded defined benefit plans
(within certain limits).
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