401(k) and Defined Benefit Plans
Qualified retirement plans are often the cornerstone of individual savings since they afford participants the opportunity for tax-deferred and, in some instances, tax free growth. Business owners typically sponsor a plan because they wish to provide their employees a benefit and because they recognize that offering a plan is essential to attracting and retaining good employees.
Another common key motivation for owners in sponsoring a plan, particular those of smaller companies, is the desire to avail themselves of the tax advantages qualified plans provide. Depending on the company and the plan design, owners have the ability to make large annual tax deferred contributions and realize greater compound growth in a way that could not nearly be replicated in an IRA, for example.
There are generally two types of qualified plans, defined-benefit plans and defined contribution plans. In a defined benefit plan, the contributions are made solely by the employer, and the Internal Revenue Code (IRC) limits the amount of benefits that can ultimately be paid out. By contrast, in a defined contribution plan such as a 401(k) the contributions can come from both the participants and the sponsor, and the IRC limits the amount of contributions that may be made per year. Determining which plan is right ultimately depends on the size of the company, the size of the payroll, and the objectives of the owners.
While sponsoring a plan is often a necessity or at least great advantage to a business, doing so comes with the added legal responsibility of becoming a fiduciary to the plan participants. Reducing sponsors' burden and helping them navigate the many questions that can come up, 5th Street Advisors provides fiduciary advisory services and consulting expertise to employers seeking to establish a retirement plan for their business or change their existing plan.
A 401(k) is a type of qualified defined contribution plan that permits participating employees to contribute a portion of their paycheck, on a pre-tax or after-tax basis, into a tax advantaged savings account where the money can be invested into a variety of mutual funds. The sponsoring employer may also choose to make contributions to the participants accounts, which are typically tax deductible on the employer’s federal tax return.
With their high annual contribution limits and tax advantaged status, 401(k) plans have become the foundation of retirement savings in the United States. Viewed less and less by employees as a merely optional benefit, offering a 401(k) is now a key element in attracting and retaining a talented workforce. Moreover, business owners can often realize benefits themselves from establishing a plan and contributing to it. Sponsoring a plan, however, can be a daunting undertaking, as it means becoming a fiduciary to the participants. Fiduciaries are required to act prudently and solely in the best interest of plan participants, a far reaching duty that extends to decisions such as selecting the service providers, choosing the investments in the plan and ensuring the expenses are reasonable.
Unlike so many other providers who often operate under inherent conflicts of interest, 5th Street is a fiduciary advisor committed to offering unbiased advice on a strictly level fee basis. We specialize in 3(21) and 3(38) fiduciary services, advising plan sponsors on a discretionary and non-discretionary basis, as well as providing enrollment and ongoing education to participants. Additionally, we offer consulting expertise on plan design issues, provider options, fee analysis, and contribution costs, among other considerations.
Defined Benefit Plans
Defined Benefit Plans
As a sponsor of a defined benefit plan, you face a myriad of administrative, cost, and fiduciary challenges. Not least of these challenges is meeting the commitment to provide your employers a guaranteed retirement benefit in the face of financial market volatility, persistently low interest rates, an uncertain regulatory environment, and changing workforce demographics. In light of this, choosing the right institutional investment advisor is essential. 5th Street has the experience and expertise to provide plan sponsors the peace of mind they require. Our disciplined investment process employs an active global investment portfolio strategy, emphasizing cost-efficiency and diversification to produce level, consistent total returns.
Beyond Traditional Defined Benefit Plans
Many employers are weary of traditional defined benefit or cash balance plan because of the risks of over funding or under funding their plans. 5th Street has partnered with many sponsors to deliver customized retirement solutions that eliminate the risk of under/over funding while still permitting contributions that greatly exceed those permitted under a defined contribution plan such as a 401(k) or profit sharing plan. Such plans can be especially well suited to smaller businesses with a group of high earners, such as medical practices, law firms, or other professional services organinzations.
If you would like to learn more about what is possible for your company, we offer consulting expertise at no cost or obligation.