Employer-sponsored Retirement Plans

Buffer Insurance provides both corporate consulting and access to trusted individual retirement planning advisors.

Whether you currently have a 401k, simple IRA, or another defined benefit plan, or are looking to implement a plan for the first time, our team of advisors can recommend funds, speak with employees one-on-one, and other tasks to help ensure that you are getting the most benefit from such a plan.

Why Create a Retirement Savings Plan?

In his book, Everyday Millionaire, author Chris Hogan explains that 79% of millionaires in the United States accumulated their wealth through their company retirement savings plan. As an employer, don’t you want to help your employees become millionaires?

Our staff and associates can walk you through the early conversation of a conceptual retirement plan and introduce you to the right advisors and benefit providers, such as Nationwide, John Hancock, Vestwell, Voya, Ameritas, Principal and more.

If you already have a 401k and need to benchmark to ensure compliance and competitiveness, we would also be able to serve you in this task.

Various Strategies for a Phenomenal Start

Various strategies include selecting a vesting schedule to auto-enrolling new employees’. It is key for a new retirement savings plan to grow its assets and participating in the plan. Buffer Benefits is equipped to help you understand these keys to set up your retirement savings plan and begin growing an asset for yourself as a business owner and an asset for your employees’ futures.

401(k) Retirement Plans

Perhaps the most popular retirement plan being elected today, a 401(k) retirement plan is a type of plan to which the employee can contribute from his or her paycheck before or after taxes are taken out. The contributions go into a 401(k) account, with the employee often choosing the investments based on options provided under the plan. In some plans, the employer also makes contributions, matching the employee’s contributions up to a certain percentage.

There are two types of 401(k) plans. In a traditional 401(k) plan, employees are allowed to make contributions from their paychecks on a pre-tax basis. Thus, employees can avoid paying taxes on this income until it is distributed from the account at retirement. The contributions also grow tax-free until distribution. In a Roth 401(k) plan, employees are allowed to make contributions from their paychecks on a post-tax basis (i.e., after taxes are taken out). Roth 401(k) contributions and investment assets grow tax-free, and because the employee paid taxes on the contributions upfront as ordinary income, distributions at retirement are generally tax-free.

Participation Rules

Typically, a plan includes a mix of rank-and-file employees, managers, and owners. However, some employees may be excluded from a 401(k) plan if they:

• Have not attained age 21;
• Have not completed a year of service; or
• Are covered by a collective bargaining agreement that does not provide for participation in the plan, if retirement benefits were the subject of good-faith bargaining.

Contribution Rules

The maximum amount an employee can contribute to a 401(k) plan in 2022 is $20,500. However, employees age 50 or older are generally permitted to make additional “catch-up” contributions of $6,500. So if you’re over fifty years old, you could potentially contribute up to $27,000/year.

Withdrawal Rules

Withdrawals from a 401(k) account directed by employees who are not yet 59.5 years old are generally subject to an additional 10% tax, on top of any income tax owed on the withdrawal amount. However, certain exceptions do apply.

In addition, holders of traditional 401(k) accounts generally must make required minimum distributions upon turning 70.5 years old or, if later, upon retirement. Click here for more information.

Nondiscrimination Rules

Traditional 401(k) plans are subject to annual testing to assure that the amount of contributions made on behalf of rank-and-file employees is proportional to contributions made on behalf of so-called highly compensated employees. For more information, contact the Internal Revenue Service.

Vesting Rules

Employee contributions are immediately 100% vested—that is, the money cannot be forfeited. When an employee leaves employment, he/she is entitled to those funds, plus any investment gains (or minus losses) they have incurred.

When an employer sets up a defined contribution plan, such as a 401(k), 403(b), or another plan, you are able to contribute to the plan. Many times the employer may also choose to contribute an amount toward your account as well. Not all times will the employer contribution be available if you leave the company.

What Does it Mean to Vest?

Vesting refers to the amount of time a participant must work before earning a nonforfeitable right to a retirement benefit. Once the participant is vested, the accrued benefit is retained even if the worker leaves the employer before reaching retirement age. Under ERISA, defined contribution plans are subject to the same vesting rules as defined benefit plans, but vesting schedules vary. Vesting schedules apply only to employer contributions; employee contributions (including pretax contributions) are always 100 percent vested.

Types of Vesting Schedules

Cliff vesting: No vesting occurs until an employee satisfies the service requirements for 100 percent vesting; for example, 5 years.

Graded vesting: Vesting refers to the amount of time a participant must work before earning a nonforfeitable right to a retirement benefit. With graded vesting, an employee’s nonforfeitable percentage of employer contributions increases over time, until vesting reaches 100 percent.

Immediate full vesting: Employees are immediately eligible to receive 100 percent of employer contributions.