Pension/401K Products

Most insurance agencies do not sell pension/401K products. At POM Financial, we work with an insurance company to offer pension/401K plan.  Together with POM Wealth Management Inc, an affiliated company, we can offer services to individual, small business owners and mid-sized companies for their retirement plan needs. 

Cash Balance Plan

A cash balance plan is a defined benefit retirement plan that maintains hypothetical individual employee accounts like a defined contribution plan. The hypothetical nature of the individual accounts was crucial in the early adoption of such plans because it enabled conversion of traditional plans without declaring a plan termination.

Defined Benefit Plan

Defined Benefit Plans A defined benefit plan is a pension plan. It is a “promise” of future benefits.  The plan sets a specific benefit at retirement.  For example, the plan may establish a benefit of “50% of salary at age 65”.  The salary defined may be the average of the final five years of salary before retirement.   Thus, the plan is specifically targeting a set benefit and promises to supply this benefit for the life of the participant.  The type of annuity benefit is also defined in the plan.  It may be defined as a joint and survivor annuity with 100% of the benefit being paid to both spouses as long as they both live.  It may be a “10 years certain” annuity with the benefits payable to the participant for life with 10 years of payments guaranteed eve if the participant would die within the first 10 years.  Various options are available including a cash payment at age 65 in lieu of an annuity payout. 

The main consideration is the plan must make sure it has enough funds at any point in time to pay the benefits of all participants.  To verify the plan is properly funded, an actuary must calculate the funding necessary to assure the plan benefits can be paid.  The maximum benefit limit that may be promised is 100% of salary at the normal retirement age.  Whatever funding is necessary to assure this benefit is allowed as a deduction for that year.  There is no limit on the contribution, only a limit on the benefit funded.  For the year 2008, the maximum benefit limit is 100% of salary to a dollar maximum of $185,000 annually. 

A Business providing a defined benefit plan must feel secure in its ability to continue funding the plan at the proper levels to assure the benefit payments to all participants.  Regardless of financial circumstances, the business must fund the plan.  Each year, the plan actuary verifies the plan is properly funded and this is communicated to the government in required annual reports. 

A 412(e)(3) fully insured defined benefit plan is a variation of the defined benefit plan.  This type of defined benefit plan is subject to different funding requirements, which may mean a higher required contribution level for the same benefit as a traditional defined benefit plan.  The plan funding is required to in insurance company life and annuity products that ultimately guarantee the plan benefit.Please see the “412(e)(3) Defined Benefit Pension Plans” brochure for additional 412(e)(3) Plan information.

Money Purchase Plans

A money purchase plan is a pension plan.  It is a “promise” that annual contributions will be made on behalf of all participants in a set amount.  It may be a dollar amount or a certain percentage of salary each year.  The business must make these contributions regardless of its financial situation.  The business providing this type of plan must feel secure in its ability to continue this level of contributions.  The maximum contribution that can be made is 25% of salary to a maximum dollar limit of $46,000 for 2008.  There is no promise of a ce rtain benefit from the plan.  The promise is that the contribution will be made each year.  The earnings on plan funds will determine the ultimate account balance of each participant at retirement.  The benefit may be paid in cash, or in the form of an annuity, depending on the plan specifications.

Target Benefit Plans

A target plan is a pension plan.  It is a “promise” that annual contributions will be made on behalf of all participants in a set amount.  This amount is determined by targeting a set benefit at retirement like a defined benefit plan.  Then, the funding to provide this benefit is determined individually for each participant like a defined benefit plan.  Once thecontribution is determined, however, it remains a fixed contribution on behalf of eachparticipant like a money purchase plan.  The plan limits are the same as a money purchase plan.  The maximum contribution is 25% of salary to a maximum dollar amount of $46,000 for 2008.  The contribution must be made each year so the business must  feel secure in its ability to maintain the contribution level.

S.I.M.P.L.E IRA Plans

A S.I.M.P.L.E. IRA plan is much like a 401(k) plan in that it allows elective deferrals by employees.  These deferrals, however, are invested in IRA contracts.  The allowable contribution is also less than that allowed by a 401(k) plan.

Simplified Employee Pension Plans

A Simplified Employee Pension (SEP) allows an employer to make contributions toindividual IRA contracts on behalf of employees.  Generally, the same contribution, as a percentage of pay, must be made for all employees.  The appeal of this type of plan is its simplicity.  However, if there are a large number of employees, the employer may want to explore the flexibility of other types of plans.