Profit Sharing Plan:

The simplicity, low cost and flexibility in funding often appeal to young or volatile businesses. Profit Sharing Plans are the most flexible plan with respect to the amount of contribution made each year. Contributions are generally discretionary, but the company must agree to make "substantial and recurring" deposits. Neither current nor accumulated profits are required for a company to contribute to a Profit Sharing Plan. Even if the company has profits, it can generally forgo or limit the amount of contribution to be made for a particular year.

Some of the Key Benefits to sponsoring a Profit Sharing Plan are:

• Employer contributions to the plan are entirely discretionary.
• The plan can be easily upgraded to add a 401(k) benefit.
• Vesting of employer contributions creates an incentive for employees to remain with the employer and thus reduce the cost of turnover.

The plan must define the formula for allocating these contributions to employees. There are various methods in which these contributions are allocated to eligible participants:

• Compensation to total compensation ("pro-rata")
• Permitted disparity of social security benefits (integration)
• Combination of age and compensation
• Tiered approach with "cross testing"
• Units such as years of service

The maximum contribution that may be made by the company each year is 25% of eligible compensation. In some cases individual participants may receive an amount greater than 25% due to the allocation formula, but in no event can the funding/deductibility of the employer contribution exceed 25% on a company level.

401(k) Plan:

One of the most popular employee benefits today is a 401(k) plan. This plan is a Profit Sharing Plan that allows for pre-tax employee contributions, with or without matching employer contributions. Employees' contributions ("deferrals") are limited by law to an annual amount limit. In 2008, the maximum is $15,500.00. Employees who are age 50 or older are allowed to defer an additional $5,000.00 called a "catch-up contribution." The government each year may increase this amount.

Some of the Key Benefits to sponsoring a 401(k) Plan are:

• Allow employees to save for retirement on a tax-favored basis with the convenience of payroll reduction.
• Optional employer matching contributions provide the incentive for employees to share the responsibility for financial security.
• Vesting of employer contributions creates an incentive for employees to remain with the employer and thus reduce the cost of turnover.

The maximum deductible contribution that may be made by the company each year (excluding employee deferrals) is 25% of eligible compensation. In some cases individual participants may receive an amount greater than 25% due to the allocation formula, but in no event can the total employer contributions exceed 25% on a company level.

In certain situations safe harbor plans provide an excellent opportunity for retirement savings for the highly compensated employee while assuring the non-highly are benefiting.

Money Purchase Pension Plan:

Company contributions are mandatory and usually based solely on each participant's compensation. The obligation to fund the plan makes the plan different from a profit sharing plan. If the company fails to make a contribution, a penalty tax to the company could be imposed.

Some of the Key Benefits to sponsoring a Money Purchase Pension Plan are:

• Employers are allowed to contribute up to the maximum limits.
• Benefits are accumulated through individual accounts and are readily understood by employees.
• Vesting of employer contributions creates an incentive for employees to remain with the employer and thus reduce the cost of turnover.

Retirement benefits are based upon how much is in the participant's account at the time of retirement - whatever pension the money can purchase. The maximum formula allowed under this plan is 25% of compensation.

Defined Benefit Pension Plan:

This plan type pre-defines the monthly benefit amount an employee will receive beginning at Normal Retirement Age. The employer is required in most cases to provide the minimum funding requirements, regardless of profitability. The annual contribution is calculated utilizing actuarial methods. These plans may require additional government reporting.

A Defined Benefit Plan provides employees with the assurance of guaranteed retirement benefits that are independent of investment performance.

Some of the Key Benefits to sponsoring a Defined Benefit Pension Plan are:

• The employer, regardless of investment performance, guarantees retirement benefits.
• The plan tends to favor older workers.
• Vesting of employer contributions creates an incentive for employees to remain with the employer and thus reduce the cost of turnover.

Section 125/Cafeteria Plans:

Internal Revenue Code Section 125 allows for employees to defer pre-tax dollars (compensation) towards the payment of certain expenses. Employees are offered a "menu" of options to choose from. The most popular options include dependent care expenses (daycare), medical and dental premiums, group life insurance premiums, and certain medical expenses. The amounts deferred are exempt from taxes such as FICA, Federal and certain State's.

A Cafeteria Plan can reduce taxes for both the employee and employer.

Some of the Key Benefits to sponsoring a Cafeteria Plan are:

• Expenses that employees pay for health insurance, medical expenses not reimbursed by insurance, and dependent care are exempt from state and federal income tax.
• Wages used to pay the expenses described above are also exempt from FICA and Medicare taxes.
• Employer's share of FICA and Medicare taxes are also reduced.