Combination Plans - Employer sponsors two plans simultaneously
A favorite plan design for many of our clients because it offers large tax deductions and savings opportunity for the business owner(s) while controlling employee cost. Two plans sponsored by the same employer where there is an intent to put some of the employees (e.g., rank-and-file employees) in the defined contribution plan and some of the other employees (often owners or higher paid employees) in the higher contribution defined benefit/cash balance plan. In order to pass participation tests it often is not possible to ONLY put higher paid employees in the cash balance plan without including some lower paid staff. Further the two plans are combined for discrimination testing which triggers a minimum 7.5% of pay contribution in the defined contribution plan (and sometimes more) to pass discrimination testing. Plan features must be similar between plans like loan availability (if any), lump sum options, ability to purchase life insurance, etc..