IRS Retirement Plans NavigatorIt’s easy to get lost in all the information about retirement plan options allowed by the law. The Employee Plans (EP) Office of the Internal Revenue Service [IRS] created and launched an online tool called IRS Retirement Plans Navigator, a web site to help small employers find the retirement plan information that’s right for their business.

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I immediately try the “Retirement Plans Navigator”. Here I share my experience here. Enjoy!

 

There are four main navigation menus on the navigator [top-down in order]:

  • Choose A Plan
  • Maintain A Plan
  • Correct A Plan
  • Plan Comparison Table

I browsed them one-by-one. Read on…

 

CHOOSE A PLAN

It contains brief descriptions of different types of retirement plans to help employer find a plan that best suits their business. To help employers narrow the search for a right retirement plan you can select plan categories shown up immediately:

[1]. Plans With IRAs

  • Participant’s retirement benefits based on participant’s account balance
  • Some plans may allow employees to contribute
  • Depending on the type of plan, employer may be required to make annual minimum contributions
  • Contribution limits of $5,000 to $49,0001, depending on the type of plan
  • Depending on the type of plan, must cover some or all of the employees in all your businesses
  • Easy to set up and operate
  • No annual return required
  • Annual nondiscrimination testing not required
  • Little design flexibility
  • No loans allowed
  • Immediate vesting of all contributions

[2]. 401(k) and Profit-Sharing Plans

  • Participant’s retirement benefits based on participant’s account balance
  • May allow employees to contribute through salary deferrals
  • Depending on the type of plan, employer may be required to make annual minimum contributions
  • Contribution limits of up to $49,0001 or more if catch-up contributions
  • Must meet minimum coverage tests but can exclude some employees
  • More complex to set up and operate
  • Annual return usually required
  • May require annual nondiscrimination testing
  • Greater design flexibility
  • Loans and hardship withdrawals allowed
  • May delay vesting of some employer contributions

[3]. Defined Benefit Plan

  • Can be set up by any employer
  • Participant’s annual retirement benefit determined by the plan’s benefit formula
  • Higher annual retirement benefits possible, up to $195,0001 per year
  • Actuary required to determine employer’s annual contributions
  • Must meet minimum coverage tests but can exclude some employees
  • Most complex to set up and operate
  • Annual return required
  • Annual nondiscrimination testing required
  • Greater design flexibility
  • Plan may allow loans
  • May delay vesting of participants’ accrued benefit

[4]. Tax-Exempt Plans

Plan options if employers are a public school, college or university, tax-exempt organization, or a state or local government entity.

 

MAINTAIN A PLAN

Keeping a watchful eye on the current retirement plan is smart business practice. Plan requirements change and it’s employer’s responsibility to know when they do. Reviewing the retirement plan each year helps ensure it is compliant with current tax laws. Like routine physicals, retirement plan check-ups can help employer prevent problems or detect them early.

They have created ‘Check-up’ brochures for several plans that explain the full importance of reviewing employer’s plan annually and the money-saving benefits of a well-run plan. There are also checklists for some of employer’s plans as a ‘tool’ to help keep employers plan compliant with many important tax rules. Employers may select type of plan to get important information and additional resources on how to maintain it.

 

CORRECT A PLAN

Mistakes can happen, even in plans maintained by the most conscientious of employers. Many mistakes can be corrected on employer’s own, without notifying the IRS. The IRS Employee Plans Compliance Resolution System (EPCRS) helps employers to make corrections to protect participant benefits and keep plans in compliance with the law.

If employers have located an error in their plan, they can select that type of plan to get important information and resources, including that plan’s Fix-It Guide or information about correcting plan errors.

 

PLAN COMPARISON TABLE

In this review, I choose three types of retirement plans:

  • Payroll Deduction [IRA];
  • 401(k); and
  • Profit Sharing

After clicking the “Compare Selected” button, here is the table shown up [you can reset your choices by clicking the “Reset Table”]:

1. Only required if plan has employer contributions but never for government plans.

2. Other – Generally, the plan’s assets are held in a tax-exempt trust, though they can also be held in custodial accounts and annuity contracts.

3. All Dollar limits are for 2009 and subject to cost-of-living adjustments in future years (except the age 50+ catch-up contributions for Payroll Deduction IRAs).

4. Employer may contribute to an employee’s retirement account but the total employer and employee contributions may not for 2009 exceed 100% of the employee’s compensation, or $49,000 or more if additional contributions permitted by plan (age 50+ catch-up contributions, 15 or more years of service or 3 years prior to normal retirement age). In a 403(b) plan, compensation means the employee’s includible compensation.

5. Required – The amount an employer must deposit into the plan on behalf of an employee must either be a matching contribution that equals a certain portion or percentage of the employee’s contributions or a minimum non-elective contribution to all plan participants. The amount of the required employer contributions vary depending on the plan.

6. The amount of an employer’s annual contributions are determined by an actuary.

7. The maximum combined employer and employee contributions are for 2009 the lesser of 100% of an employee’s includible compensation, or $16,500 or more if additional contributions permitted by plan (age 50+ catch-up contributions or 3 years prior to normal retirement age).

8. Only applies to government plans.

9. Withdrawals may be made at any time, subject to tax.

 

Employers may direct their technical and procedural questions concerning retirement plans to the developer [IRS] in several ways. However, answers to many of questions may already be available under Retirement Plans Frequently Asked Questions (FAQs) on the navigator itself. If you do not find the answer to your question, you may visit EP Customer Account Services on IRS.gov.

 

Conclusion

As name of the tool [IRS Retirement Plans Navigator] it says, it is a navigator, not a calculator. You would not expect the tool to show a calculation result. This tool merely shows you information that compliance with IRS rules, keep the initial retirement plans on track. Not only for small-business owners, it also helps midsized businesses and their accountants review the various options. Individuals who want to better understand their employer’s plan may also find it of use. The IRS said the Web-based guide will be kept up to date as pension laws and regulations change. You can try the online retirement plans navigator yourself [here]