Question

THIS IS FOR AN EMPLOYEE BENEFITS AND RETIREMENT CLASS. QUALIFIED PLANS WOULD BE SOMETHING LIKE A 401K, IRA, ETC.

Next week we are going to discuss establishing, administering and terminating qualified plans. Assume you are 50 years old. You have started your own business and you have 5 employees. You have decided to add a qualified plan to your employee benefit package. Tell me the following (you can assume whatever you want with regards to your answers):

1. What plan will you establish and why?

2. What are your expectations of what the employer and employee will do with this plan (i.e, will the employees contribute, will the employer contribute and if so how much and how often do you expect this will happen)?

3. What is your age and service requirement?

4. Will you cover everyone that meets the age and service requirement or will you exclude a class of employees?

5. What vesting schedule will you use?

Answer 1

1. I will establish a profit sharing plan like 401K because this is less expensive in comparison to the other retirement plans

2. The 401K retirement plan is very popular among the employees because this plan allows them to reduce their current income tax. In this plan, employees can invest a few amounts from their salary each month. The employees don't pay income tax on their salary until they get the money from the 401K plan. The role of the employers is to allow their employees to change the investment amount whenever they want based upon their personal situations. They also permit their employees to make their own investment decisions like how much they want to invest each month and for how long.

3. I am 50 years old and I have 30 years of service credit.

4. I will cover everyone who will meet the age of 65 and at least 5 years of service credit.

5. I will use the three-year cliff vesting schedule. In this case, an employee is not required to vest before the 3 months of service. But after the completion of 3 years of service, 100% vesting is required.