Improving your retirement plan

Establishing a retirement plan for your company is not as easy as you may believe it is. Finding a capable local investment or insurance representative is just one step. To make sure you satisfy your employees and comply with government regulations, you should educate yourself before establishing and managing your company's retirement plan.

Plan design

The first thing to consider is plan design. New Internal Revenue Service (IRS) rules involving safe harbor 401(k) contributions, which are similar to traditional 401(k) contributions but must provide for employer contributions that are fully vested when made, allow employees to maximize their contribution rates and contribute up to $15,500 of their salaries. An additional $5,000 may be contributed by employees older than 50. This type of plan will enable you to maximize contributions for yourself and key employees.

Additionally, new cross-tested plans—employer-sponsored, defined contribution retirement plans that favor older, long-term employees—allow different employer contribution rates for different employee classifications. This type of plan can allow a contribution rate for key employees of up to three times the contribution rate for nonkey employees. A retirement plan adviser can explain these options further.

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