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Understanding The Advantages of Safe Harbor 401(k) Plans versus SIMPLEs

Understanding The Advantages of Safe Harbor 401(k) Plans versus SIMPLEs. Presented by: Mark M. Gutrich President & CEO ePlan Services, Inc. What is a Traditional 401k?. Basics. Pros & Cons. PROS: Easy to Set-Up & Administer No Mandatory Contributions Permitted Disparity Designs

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Understanding The Advantages of Safe Harbor 401(k) Plans versus SIMPLEs

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  1. Understanding The Advantages of Safe Harbor 401(k) Plansversus SIMPLEs Presented by: Mark M. Gutrich President & CEO ePlan Services, Inc.

  2. What is a Traditional 401k? Basics Pros & Cons PROS: Easy to Set-Up & Administer No Mandatory Contributions Permitted Disparity Designs Optional Vesting Schedules Optional ROTH Contributions Optional Loan Feature CONS: Annual Tax Filings Annual Administration Fees Annual Discrimination Tests • Plan Adoption Agreement • Flexible Eligibility: • 18 to 21 Years of Age • Worked 1,000 hours/year • Optional Contributions: • Deferral Matching • Profit Sharing • Elective Deferrals: • 100% of Compensation • Up to $15,500/year • $5,000 “Catch-Up” if 50+ - 1 -

  3. What is a Safe Harbor 401k? Basics Pros & Cons PROS: Easy to Set-Up & Administer No Discrimination Testing Optional Profit Sharing Optional Vesting Schedules* Optional ROTH Contributions Optional Loan Feature CONS: Annual Tax Filings Annual Administration Fees Mandatory ER Contributions • Plan Adoption Agreement • Flexible Eligibility: • 18 to 21 Years of Age • Worked 1,000 hours/year • Mandatory Contributions: • 3% of Annual Compensation • OR - • 3.5% to 4% Match on Deferrals • Elective Deferrals: • 100% of Compensation • Up to $15,500/year • $5,000 “Catch-Up” if 50+ - 2 -

  4. How Can They Be Structured? Non-Elective Safe Harbor Safe Harbor Match Matching Contributions: 100% up to 3% Comp 50% on next 2% Comp Owner/HCE Deferrals: 100% of Compensation Up to $15,500/year $5,000 “Catch-Up” if 50+ Must Pre-Notify: Determined Annually 30 Days Before Plan Year • Mandatory Contributions: • Flat 3% of Compensation • Regardless of Participation • Owner/HCE Deferrals: • 100% of Compensation • Up to $15,500/year • $5,000 “Catch-Up” if 50+ • Can Wait To Notify: • Determined Annually • 30 Days Before Year-End - 3 -

  5. What’s The Difference? Employees:AvgDefrral Annual Comp 2 Owners Max $300,000 1 Highly Compensated Employees (HCEs) 10% 105,000 4 Non-HCEs (Participate) 5% 160,000 3 Non-HCEs (Don’t Participate) 0% 90,000 TOTAL PAYROLL $655,000 SH Match Summary:% Contrib Owners $12,000 53% HCEs 4,200 19% NHCEs 6,40028% TOTAL $22,600 (Immediately Vested) SH NEC Summary:% Contrib Owners $ 9,000 46% HCEs 3,150 16% NHCEs 7,50038% TOTAL $19,650 (Immediately Vested) Non-Elective Safe Harbor Safe Harbor Match - 4 -

  6. What If Excluded Owners/HCEs? Employees:AvgDefrral Annual Comp 2 Owners Max $300,000 1 Highly Compensated Employees (HCEs) 10% 105,000 4 Non-HCEs (Participate) 5% 160,000 3 Non-HCEs (Don’t Participate) 0% 90,000 TOTAL PAYROLL $655,000 SH Match Summary: Owners - $ - 0 - HCEs - - 0 - NHCEs 2.6% 6,400 TOTAL 1.0%$ 6,400 (Immediately Vested) SH NEC Summary: Owners - $ - 0 - HCEs - - 0 - NHCEs 3% 7,500 TOTAL 1.1% $ 7,500 (Immediately Vested) Non-Elective Safe Harbor Safe Harbor Match - 5 -

  7. SIMPLE v. SH401k SIMPLE Safe Harbor 401(k) Low Administrative Fees Easy Annual Tax Filings No Discrimination Testing May Exclude Employees Max Personal Deferrals: 100% Compensation Up to $15,500 $5,000 “Catch-Up” if 50+ Mandatory Contributions: 3% of Annual Compensation OR – 4% Match on Deferrals 100% Immediately Vested • No Administrative Fees • No Annual Tax Filings • No Discrimination Testing • Must Include ALL Employees • Max Personal Deferrals: • 100% Compensation • Up to $10,500 • $2,500 “Catch-Up” if 50+ • Mandatory Contributions: • 2% of Annual Compensation • OR - • 3% Match on Deferrals • 100% Immediately Vested - 6 -

  8. How Do They Compare? Employees:AvgDefrral Annual Comp 2 Owners Max $300,000 1 Highly Compensated Employees (HCEs) 10% 105,000 4 Non-HCEs (Participate) 5% 160,000 3 Non-HCEs (Don’t Participate) 0% 90,000 TOTAL PAYROLL $655,000 SH Match Summary: Owners - $ - 0 - HCEs - - 0 - NHCEs 2.6% 6,400 TOTAL 1.0%$ 6,400 (Immediately Vested) SH Match Summary: Owners 3% $ 9,000 HCEs 3% 3,150 NHCEs 1.9% 4,800 TOTAL 2.6% $16,950 (Immediately Vested) SIMPLE Match Safe Harbor Match 401(k) - 7 -

  9. Who Gets The Benefit? - 8 -

  10. Isn’t There A Vesting Version? Automatic Enrollment Safe Harbor 401(k) Available Vesting Schedules: Immediate 50% per Year 2-Year Cliff Benefits Creates Retention Plan Forfeit Contributions: Pay Annual Plan Expenses Offset Future Contributions Distribute to “Vested” EEs • Enroll Every Employee: • Minimum 3% Deferral • Employee May Opt Out • Automatic Increases: • Scheduled Annual Increases • Scale up to 6% over 3 yrs • Mandatory Contributions: • 100% of first 1% Deferral • 50% of next 5% Deferral - 9 -

  11. How Does It Work? Employees:AvgDefrral Annual Comp 2 Owners Max $300,000 1 Highly Compensated Employees (HCEs) 10% 105,000 4 Non-HCEs (Stay In) 5% 160,000 3 Non-HCEs (Opt Out) 0% 90,000 TOTAL PAYROLL $655,000 • Enroll Every Employee: • 3% Deferral • 1% Escalator/Year • Offer Employees Opt-Out • Start Making Contributions AutoEnroll SH Match Summary: Owners - $ - 0 - HCEs - - 0 - NHCEs 1.9% 4,800 TOTAL 0.7% $ 4,800 (Vested Over 2 Years!) - 10 -

  12. SIMPLE v. AE401k SIMPLE AutoEnroll 401(k) Low Administrative Fees Easy Annual Tax Filings No Discrimination Testing May Exclude Employees Max Personal Deferrals: 100% Compensation Up to $15,500 $5,000 “Catch-Up” if 50+ Mandatory Contributions: 3% of Annual Compensation OR - 3.5% Match on Deferrals Up to 2 yr Vesting Schedule • No Administrative Fees • No Annual Tax Filings • No Discrimination Testing • Must Include ALLEmployees • Max Personal Deferrals: • 100% Compensation • Up to $10,500 • $2,500 “Catch-Up” if 50+ • Mandatory Contributions: • 2% of Annual Compensation • OR - • 3% Match on Deferrals • 100% Immediately Vested - 11 -

  13. How Do They Compare? Employees:AvgDefrral Annual Comp 2 Owners Max $300,000 1 Highly Compensated Employees (HCEs) 10% 105,000 4 Non-HCEs (Participate/Stay In) 5% 160,000 3 Non-HCEs (Don’t Participate/Opt Out) 0% 90,000 TOTAL PAYROLL $655,000 SH Match Summary: Owners - $ - 0 - HCEs - - 0 - NHCEs 1.9% 4,800 TOTAL 0.7%$ 4,800 (Vested Over 2 Years!) SH Match Summary: Owners 3% $ 9,000 HCEs 3% 3,150 NHCEs 1.9% 4,800 TOTAL 2.6% $16,950 (Immediately Vested) SIMPLE Match AutoEnroll SH Match 401(k) - 12 -

  14. Who Gets The Benefit? - 13 -

  15. How Do I Decide? Objective/Decision Plan Type SIMPLE 401(k) NEC SH 401(k) or SIMPLE Match SH 401(k) or SIMPLE SH 401(k) or SIMPLE AutoEnroll SH Match 401(k) • Do Owners Want to Defer: • $10,500/year • $15,500/year • Does Employer Want: • Give Employees Money • Offer Savings Incentives • Does Employer Want: • Unconditional Benefit • Retention Benefit - 14 -

  16. Dates To Remember • Notify Re: SH Match December 1st (Previous Year) • Convert SIMPLE to SH401k January 1st (Current Year) • Determine SH NEC November 31st (Current Year) • Establish New SH401k October 1st (Current Year) - 15 -

  17. Questions & Answers

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