Are you looking to stash more money into retirement? A pension plan may be a great option for you. I will show you how setting up a pension plan might not be as tough as you might think.
In this post, we will address the following:
While a majority of the business world has moved to defined contribution plans, such as 401Ks, the pension plan or defined benefit plan has many benefits that you may want to consider.Easy Links
- Setting up a Pension Plan
- Consider a financial advisor
- Create a pension plan document
- Create a plan strategy
- Choose a Third-Party Administrator
- Make the required contributions
- Start a Pension Plan
- How to set up a pension plan
- Bottom Line
Setting up a Pension Plan
How do you set up a pension plan? It’s not as hard as it seems. Check out our simple how-to guide below.
Consider a financial advisor
There are a lot of requirements that go along with setting up a pension plan. Let a seasoned financial advisor help you navigate the rules and regulations. The advisor needs information about your employees, their ages, and salaries to calculate the amount you must contribute to the plan based on your chosen percentage and the IRS rules.
Create a pension plan document
Your pension plan document is the governing document that includes all the rules and regulations of the plan. This includes details such as the amount of the contributions (percentages) and interest rates. The plan document must follow all IRS rules but can incorporate its own rules and regulations as well, as long as they are within the law.
Create a plan strategy
Illustrate what the plan looks like to you as this helps keep you accountable. Make sure you have provisions in place should your company face issues and be unable to make contributions. Your plan or illustration should include plans to amend and freeze the plan, if necessary. It should also include the options and circumstances under which you can terminate the plan and how you’d distribute the assets to participants.
Choose a Third-Party Administrator
Rather than taking on the administrative components of a pension plan, hire a third-party administrator to handle it for you. TPAs work alongside you to help you remain compliant and accurate in your record-keeping and plan contributions/distributions. A TPA can help you create the plan documents, prepare statements, perform annual reviews, prepare necessary reports for the IRS, calculate contributions, and manage audits.
Make the required contributions
You must make all necessary contributions by the due date of your tax returns, whether you are on a calendar year filing or tax year filing. If you need an extension, aka can’t make your contributions on time, you may request an extension of 8 ½ months. If you’re on the calendar year plan, this means your contributions for the previous year would be due by September 15th.
Start a Pension Plan
It’s not as difficult as it seems to set up a pension or defined contribution plan and there are many benefits of doing so. If you are looking for ways to entice more talented people to work for your company or you need a tax-friendly way to catch up on your own retirement plans, the pension plan is a great idea.
The key is to have proper help. Don’t try to manage this process alone. While you try to manage and grow your business, you need qualified personnel to help you run your pension plan as there are many laws and regulations you must follow. If you do, though, you benefit from the tax advantages, the ability to increase your own retirement savings at much higher levels, and the possibility of attracting and keeping great employees.
In summary, setting up a pension plan for your business requires the help of:
- A financial advisor – This person will help you make decisions right upfront. You’ll choose the right plan, see the pros and cons of other plans, and make contribution decisions. You’ll go over the IRS rules and regulations and decide what steps you should take, including the type of vesting you’ll offer, whether cliff or gradual.
- A third-party administrator – Once you have the plan in place, don’t let the administrative tasks take over your day. Again, focus on your business and growing it as that’s the only way you’ll keep up with your required contributions. Find a TPA that you work well with as you’ll be in constant contact throughout the year.
Setting up a Pension Plan
Once you have the proper help in place, the rest of the steps are easy for you to manage:
- Create your documents – You want your documents to be as straightforward and informative as possible. You want your employees to understand the plan and see it as an advantage of working with you. Of course, always have an open door with your employees, allowing them to ask questions of you or the TPA to determine where they stand with their retirement accounts.
- Be flexible – If things happen down the road (as we all know life is unpredictable), you need plans in place to freeze or terminate your plan. Don’t let your plan become a liability; instead, have plans in place with the help of your support system that allows changes to the plans that will allow your business to stay afloat while keeping you in line with the IRS rules and regulations.
If you’re interested in setting up a pension plan, start today! The sooner you start the more money you’ll accumulate for yourself and your employees. Setting up a pension plan can be straightforward with the right help and following the IRS guidelines. Get yourself and your employees set up for retirement today.