1. Qualified Retirement Plan Design For the Closely Held Company
Presented By
Steven J. Musmanno, MBA, AIFA®
Co-Managing Partner

2. Disclosures
APS Pension & Financial Services is a full services Third Party Administrator and Actuarial Consulting Firm.
Investment advisory services offered through APS Investment Management, Inc., a registered investment adviser (RIA). APS Investment Management is an ERISA § 3 (38) and (21) Investment Advisor to 401(k) and 403(b) Plans.
Wealth Management advisory services offered through APS Wealth Management, LLC., an SEC registered investment adviser (RIA).

3. Agenda
What are the various plan design options a business owner can choose from to maximize his/her tax deduction and provide an employee benefit?
Choosing the Right Plan Design for your client? Defined Contribution or Defined Benefit
Can I combined two different types of plans?
The 401k plan universe – Not all 401k’s are created equal!
Why should I use a Third Party Administrator?
Questions & Answers

4. Traditional Profit Sharing Plan
Illustrated to provide maximum to Harold and John, business owners 69.77%
All employees treated the same
Only leverage is compensation

5. Profit Sharing Plan Coordinated with Social Security
Illustrated to provide maximum to Harold, total for owners 72.4%
More leverage based on compensation, employee cost down 15+%
Second owner not at maximum

6. Traditional Profit Sharing with Safe Harbor 401(k)
Illustrated to provide maximum for Harold, total for owners 81.92%
Safe Harbor 401(k) does not require testing
Must provide non elective safe harbor or safe harbor match
Owner’s deferral does not depend on employee’s deferral as in traditional 401(k)
Employer contribution is based on the percentage contribution for Harold, 10.27%
The salary deferral for Harold and John are funded with salary increases
Percent of total includes deferral for owners

7. Class Allocation Profit Sharing Plan
Illustrated to provide maximum to Harold, total for owners 87.6%
Two classes of employees, owners and others
Can place each employee in a separate class
Contribution is leveraged based on salary and age
Contribution is projected to retirement age, converted to an annuity and tested
Allocation to each class can change annually, only the class is defined

8. Defined Benefit Plan
No limit on contribution, limit is on monthly benefit
Each year there is a minimum contribution due and a maximum allowable
Age and compensation are the leveraging factors
Although contributions are flexible each year the minimum must be made
Although owners get 70.77% the contribution for the employees is significant

9. Defined Benefit Plan, Better Design
This plan design must pass two tests, coverage and participation
Coverage is passed: NHCE % / HCE % = > 70% ([2 / 5] / [1 / 2]) = 80%
Participation is passed: # of participants / # total eligible = > 40% (3 / 7) = 42,8%
Both tests must be passed every year

10. Two Plan Combination, Defined Benefit/PS 401(k)
Harold, Louis and Randy are excluded, see coverage test above
Maximum contribution for John
Safe Harbor 401(k) does not require testing
Profit Sharing contribution is 16.5%

11. Two Plan Combination, Defined Benefit/PS 401(k) - Part 2
Same defined benefit plan design as above
Satisfy the coverage test and the participation test
Total contribution for owners $202,702
Total contribution for employees $51,841
Percent for owners 79.6%

12. Choosing The Right Plan
Although choosing the appropriate qualified plan can be difficult, a logical process can be followed to make the right decision for a specific company. In fact, in each case it is possible to arrive at more than one suitable choice of plan. The following checklist can assist you in determining the company’s needs.
Current annual budget for contribution $_________________
Is the cash flow consistent or erratic? _________________
Are benefits to be provided for all employees equally or to be weighted for the owners and key employees?
⟡ Fixed deposit ⟡ Flexible deposit
⟡ Employee benefit ⟡ Select group of employees
4. If the answer to item 3 is “employee benefit,” consider using the following:
⟡ Traditional 401(k) plan ⟡ Target benefit pension plan
⟡ Profit-sharing plan ⟡ DB pension plan (in larger companies)
⟡ Money purchase pension plan

13. Choosing The Right Plan, continued
If the answer to item 3 is “select group,” are the owners and key employees of the company older than the rank-and-file employees?
Yes No
6. If the answer to item 5 is “yes,” consider:
Age-weighted profit-sharing plan
New comparability profit-sharing plan
Safe harbor 401(k)
DB plan
7. If the answer to item 5 is “no,” consider:
Safe harbor 401(k) plan
Two-plan combinations

14. Choosing The Right Plan, continued
8. Are there any special issues to consider? For example:
Disposition of stock in non-publicly traded company
Estate planning issues
Business succession planning issues
Multiple companies controlled by the same owners
Family-owned business
9. Compliance questions to ask:
Are there any other businesses owned by the principals?
Are there any family members working in this company?
Does the owner participate in any other retirement plan, e.g. a physician that participates in a hospital’s 403(b) plan in addition to this plan in his/her private practice?
Did this business ever have a qualified retirement plan?
Are any of the employees union?

15. 401(k) Plan Types Traditional Simple IRA Simple 401(k) Safe Harbor
Auto-Enroll SH
ADP/ACP Testing
Yes No
Top-Heavy Rules
No, if only
safe-harbor contributions
Match
Flexible
100% of first 3%,
No cap on salary
100% of first 3%
and 50% of next 2%
100% of first 1%
And 50% of next 5%
Flexibility of Match
With notice reduce to 1% for two out of five years
Enhanced match if result is same or better than required match
Non-Elective Option 2%
With notice 2%
With notice 3%, can be used in non-discrimination testing 3%

16. 401(k) Plan Types, continued
Traditional
Simple IRA
Simple 401(k)
Safe Harbor
Auto-Enroll SH
Taxation
10% early withdrawal penalty
25% penalty in first two years, then 10% penalty
Deferral Limit
$17,500 indexed
$12,000 indexed,
25% limit does not apply
$12,000 indexed
Effective
N/A
After 12/31/96
After 12/31/98
After 12/31/07
5500 Filing
Yes No
Maintain Other Plans
Yes, but not for same employees

17. 401(k) Plan Types, continued
Traditional
Simple IRA
Simple 401(k)
Safe Harbor
Auto-Enroll SH
Other Contributions
Yes No
Vesting
Traditional full options
Full
2-year Cliff
Rollovers
Existing rules
After two years in plan or to another SIMPLE
New Plan
Can be adopted any time of year
No later than October 1 unless newly established employer
No Regs

18. Why should I use an Third Party Administrator?
Effective plan design.
What in it for me (WIIFM)? Business owners are self motivated
Eliminate corrective distributions
Most plans in small companies that are terminated by business owners are because they do not benefit the owner properly or effectively.
Section 199a deductibility
Compliance
Garbage in, Garbage out! (ADP & Paychex)
No 800#, each plan/client is assigned a lifetime dedicated administrator
Costs are transparent.
Actuary required for a DB plan

19. 401(k) Plan Types
Q & A

20. 401(k) Plan Types Thank You Steven J. Musmanno, MBA, AIFA®
APS Pension & Financial Services