What is the role of Actuarial Consulting Group, Inc. (ACG)?
How does ACG compare to other TPAs?
What does a pension actuary do?
What is a Defined Benefit Pension Plan?
Can you amend a Defined Benefit Plan?
Is an annual contribution limited to a percentage of income?
When is the annual contribution due?
Can the contribution amount be reduced after I set up my plan?
What is the maximum amount I can contribute?
iI have employees other than myself. Do I have to cover them in the Defined Benefit Pension Plan?
I own more than one business. Do I have to cover employees in both businesses?
I have a Profit Sharing Plan for my business. Can I now terminate that plan and set up a Defined Benefit Pension Plan?
Can I maintain both a 401(k) plan and a Defined Benefit Pension Plan?
What happens if my investment performance is greater or less than the actuarial assumed interest rate?
Can I stop the plan before my plan’s retirement date?
Do I have to actually retire on the plan’s specified retirement date?
Are loans or hardship withdrawals allowed?
Can I get tax credit to set up a defined benefit plan?
What is the role of Actuarial Consulting Group, Inc. (ACG)? Back to top
How does ACG compare to other TPAs? Back to top
We have our own in-house actuary vs. other TPAs outsource their plan to other actuaries who merely signs the prepared documents. We ensure that your plan is evaluated and reviewed by our assigned actuary to provide the most legally accurate result.
What is an actuary? Back to top
In a nutshell, an actuary is a business professional who analyzes the financial consequences of risk. Actuaries use mathematics, statistics, and financial theory to study the uncertainty of future events, especially those of concern to insurance and pension programs.
What does a pension actuary do? Back to top
The main tasks of pension actuaries are ensuring that their clients are in compliance with the law, calculating the employer’s liability for the defined benefit pension plan and determining contributions to be made to the plan. They provide calculations of monthly pension amounts to be paid to its retirees. Pension actuaries perform annual valuations to determine the employer’s liability for the pension plan. The valuation includes two main areas: funding and expense.
What is a Defined Benefit Pension Plan? Back to top
A defined benefit pension plan is a qualified plan in which you set a target retirement benefit -- the amount you want to have when you retire. Your annual contributions are calculated each year by ACG to provide that benefit at the set age of retirement. Contributions are based on current age, the average of your three highest years of income, your planned retirement age, and the assets balance you have accumulated in the plan.
Can you amend a Defined Benefit Pension Plan? Back to top
Yes, to increase the benefit formula or decrease the formula which will result increasing or decreasing the contribution amount and/or you can change your retirement date or age.
IIs a contribution mandatory? Back to top
Yes. A contribution is required each year to fund the benefit. This is called “Minimum Contribution Requirement”. However, you still have the option to amend the plan benefit formula to meet the ideal contribution amount accordingly.
Is an annual contribution limited to a percentage of income? Back to top
No. Your annual contribution is determined by age, compensation amount, investment performance, any actuarial assumptions and the maximum benefit allowed.
When is the annual contribution due? Back to top
It is due no later than 8 1/2 months after close of the plan year. You must make it on or before the due date of your tax return, including any extensions, in order for the contribution to be deductible.
Can the contribution amount be reduced after I set up my plan? Back to top
Yes. You can always amend your plan formula down or if your investment performance is greater than the assumed interest rate, your contributions will decrease or if your compensation decreases, your required contribution may also decrease.
What is the maximum amount I can contribute? Back to top
The maximum that you can contribute each year is determined by the amount required to fund your maximum allowable annual benefit on your retirement date. This figure is determined by an actuary and is not limited to a maximum dollar amount.
I have employees other than myself. Do I have to cover them in the Defined Benefit Pension Plan? Back to top
All eligible employees must be included by law. To prevent any part-time employees from entering the plan, select a one-year/1000 hours entry requirement. However, you may want to adopt another plan called “Profit Sharing Plan” to cover your eligible employees and leave yourself under the Defined Benefit Pension Plan.
I own more than one business. Do I have to cover employees in both businesses? Back to top
Generally, yes. If you own other businesses and you are considered part of a controlled group or affiliated service group, then all businesses must be covered under such plan.
I have a Profit Sharing Plan for my business. Can I now terminate that plan and set up a Defined Benefit Pension Plan? Back to top
Yes. However, if you might want to keep the current Profit Sharing Plan for your current employees and then set up a NEW Defined Benefit Pension Plan for yourself.
Can I maintain both a 401(k) plan and a Defined Benefit Pension Plan? Back to top
Yes. Elective deferral contributions do not count against the deductible limit described above. As long as the 401(k) plan is a deferrals only plan, you can make contributions to both plans. And, an employer can contribute up to 6% of pay to a profit sharing plan without reducing the contribution limits in their company's defined benefit plan.
What happens if my investment performance is greater or less than the actuarial assumed interest rate? Back to top
You will be required to put less or more money into the plan to achieve your goal if the investments grow faster than expected. However, you can always amend the plan formula.
When can I retire? Back to top
A plan is expected to be maintained at least five to seven years and the earliest retirement date is age 62 without incurring penalty.
Can I stop the plan before my plan's retirement date? Back to top
Yes. Your plan can be terminated at any time and the assets of your benefit can be rolled over to an IRA. However, you must inform ACG of your decision to terminate as it is required by law to file for the termination.
Do I have to actually retire on the plan's specified retirement date? Back to top
No. The plan's retirement date is used to determine the contribution amount each year. You may be able to change your retirement date, but still no earlier than 62 without incurring penalty.
Are loans or hardship withdrawals allowed? Back to top
The plan does not permit hardship withdrawals, but loans for participants are available if the employer chooses this feature.
Can I get tax credit to set up a defined benefit plan? Back to top
Yes. According to IRS Code Sec. 45E, 50% of the start-up costs incurred to create or maintain a new qualified employee retirement plan for small business (limited to $500 annually) for the first 3 Taxable Years beginning with the tax year in which the plan become effective. An eligible small business is one that has not employed more than 100 employees who received at least $5,000 of compensation from that employer in the preceding year, and at least one non-highly compensated employee eligible to participate in the plan. An eligible plan includes:
A New Qualified Defined Benefit Plan
A New Defined Contribution Plan (include 401k plan)
No tax deduction is allowed for any amount claimed as credit. In other words, if the total cost for a taxable year is $1200, the employer can take a tax deduction for $700 and an income tax credit for $500.
Use Form 8881 (Credit for Small Employer Plan Startup Costs) to calculate and to claim the credit.