Defined Contribution Plans
Safe Harbor 401(k) Plan
A Safe Harbor 401(k) Plan can benefit all employers, especially those concerned about passing annual IRS-required nondiscrimination tests. Safe Harbor plans require and employer match, which is always 100% vested, as part of the plan provisions. Additionally, this plan design type will also permit any employee, including owners, to make salary deferrals up to the annual limits each year without concern of nondiscrimination testing results
- All employees can contribute up to the plan year maximum
- Required employer match contribution
- Automatically passes ADP/ACP tests
- Usually deemed to pass Top Heavy nondiscrimination test
- Ability to include an additional employer profit sharing contribution
SmoothStart 401(k) Plan
A “Smooth Start” 401(k) Plan is a unique Nova plan offering that streamlines many of the features offered to a traditional 401(k) plan. This creates an affordable, easy option for employers sponsoring their first 401(k) plan – there is no need for complicated features or confusing plan design choices. Our Smooth Start plan provides a Safe Harbor plan design setup, as well as employer-determined eligibility features such as loans and pre-tax rollovers into the plan. Additionally, our Smooth Start plan eliminates the initial plan document fee to establish the plan, thereby making it easy for an employer to start the 401(k) plan. Nova also prepares the annual Form 5500 filing and any IRS required amendments to the plan document.
Traditional 401(k) Plan
Traditional 401(k) plans are great for companies who want to offer their employees the chance to save for their own retirement! They are especially appealing for employers who have a lot of participation from all classes of employees and who like the idea of deciding each year whether or not to make company contributions into the plan.
- Flexibility in company contributions
- Wide variety of plan provisions, including eligibility and rollover options
- Ability to add a vesting schedule to company contributions
- Option of offering different types of distributions
New Comparability Plans
A new comparability plan is a special profit sharing plan designed to maximize the overall retirement plan contributions for business owners and targeted highly compensated employees. This type of plan takes advantage of IRS nondiscrimination testing that converts employer contributions to monthly lifetime benefits at age 65. This testing allows larger contributions to be made to older employees, including owners, because they are closer to retirement age. A new comparability plan can be set up just for employer profit sharing contributions, but are typically established with a 401(k) safe harbor feature.
Multiple Employer Solutions
Multiple Employer Plans (MEPs)
MEPs are a single retirement plan that multiple companies participate in. The IRS considers these individual plans for purposes of the nondiscrimination testing and the top heavy testing. The Department of Labor (DOL) considers these to be single plans for purposes of the Form 5500. The DOL requires the adopting employers have something in common other than the retirement plan (referred to as common nexus) in order to file a single Form 5500. MEPs that do not meet this requirement are required to file a Form 5500 for each adopting employer. MEPs are often sponsored by PEOs or by companies that have some common ownership, but not enough to rise to the level of a controlled group.
Association Plans are a type of MEP that was created by the DOL in 2019. Association Plans expand the entities that can sponsor a MEP to include chambers of commerce, trade associations, and other related entities. The common nexus requirements still apply, but can include employers in the same trade, same industry, same line of business, or same geographic area.
Pooled Employer Plans (PEPs)
PEPs are a new type of MEP that was created by Congress and allowed for the first time in 2021. PEPs further expand the types of entities that can sponsor the plan to any company that registers as a Pooled Plan Provider (PPP) with the DOL. PEPs do not have the common nexus requirement other types of MEPs do and the threshold to make the MEP subject to independent CPA audit increases to 1,000 participants if no single adopting employer has more than 100 participants. The PPP takes on many of the fiduciary responsibilities for the plan, but can outsource those duties like any plan sponsor.
Groups of Plans (GOPs)
GOPs are the newest plan aggregation model created by Congress and will be allowed for the first time in 2022. GOPs allow groups of individual plan sponsors to file a single Form 5500 if certain conditions are met. The conditions are that each member of the GOP have the same Trustee, Plan Administrator, Named Fiduciary, Plan Year Beginning Date and Investment options available to participants. Much additional guidance is expected from the DOL before these plans become available in 2022.
403(b) Plans are available to organizations exempt from tax under Section 501(c)(3), churches that qualify as such and public educational institutions. A 403(b) plan allows employees to contribute a portion of their salary to the plan, as well as the option for the employer to make contributions on behalf of the employee. The terms of the 403(b) plan determine when an employee may enroll. However, this plan type is generally required to allow all eligible employees to participate as of their employment date – traditionally referred to as the ‘universal availability’ rule.
457(b) plans are available to state or local governmental entities and tax-exempt organizations. The combined total of employee and employer contributions cannot exceed the annual established limits each year ($19,500 in 2021). 457(b) plans offer similar options as traditional DC plans, including catch up contributions and Roth contributions. Additionally, tax-exempt organizations that sponsor a 457(b) ‘Top Hat’ plan typically offer the plan to a small group of employees, such as top management, for participation as these plans are not permitted to include rank-and-file employees. These plan types can also include a combination of employee and employer contributions, but are limited to the established plan limits each year.
A 401(a) plan is generally offered by a tax-exempt organization, including governmental entities. The employee contribution level is established by the employer, as employee participation is often mandatory. The employer is also required to contribute to the plan and responsible for the investment choices.
Instant Solo(k) Plan
This type of retirement plan is available to a direct business owner and their spouse, so long as there are no full-time employees at the business. Owner-Only retirement plan clients are afforded the same pre-tax deferral opportunities of traditional DC plans, but often are not required to adhere to some of the traditional annual administration requirements. Nova is pleased to offer it’s “Instant Solo(k)” plan option for those business owners looking to immediately establish a retirement plan.
More About Nova 401(k) Associates
We Get It. We Listen. We Communicate.