Pension & Profit-Sharing Attorney

The U.S. government encourages individuals and businesses to set aside money for retirement through the use of qualified pension, profit-sharing, and individual retirement account (IRA) programs. The IRS and the U.S. Department of Labor administer these programs. Over the years, hundreds of statutes, regulations, and rulings have been issued to regulate them. The regulations deal with what must be done to set up and maintain a plan, who must be covered, when benefits can be paid out, and how they are taxed.

Congress constantly enacts legislation affecting qualified plans and IRAs, and the IRS and Department of Labor require that these programs be updated to remain qualified.

We have the expertise to advise individuals and businesses concerning the appropriate type of plan to set up, and what amendments are necessary to maintain their qualified status. We also have IRS-approved prototype plans that an employer or individual business person can adopt, which automatically qualifies for IRS approval.

Pension, profit-sharing, and non-Roth IRA plans have the benefit that the individual or business can contribute to them for the benefit of the individual or their employees, take a tax deduction, allow the funds to grow tax-free inside the plan, and then the participant may receive benefits at a later time, when their tax bracket might be lower.

It is possible to design a plan so that if the need arises, the participant can have access to his or her benefits at an earlier time, through hardship distributions or plan loans.

Pension and profit-sharing plans have coverage requirements. The government does not want the plan to cover solely the business owner when there might be, for example, ten other full-time employees. Unless a plan falls within special rules, a plan generally must cover 70% of non-highly compensated employees, defined as those who have attained age 21, completed 1 year of service, and work more than 1,000 hours in a year. Collective bargaining employees can be excluded.

The government allows plans to be designed so that highly-compensated older employees, who are closer to retirement age, can receive more benefits than younger, lower-paid employees. The rationale is that an employee who is age 55, for example, with a retirement age of 65, has 10 years to fund a retirement benefit plan, versus a 25-year-old employee, who has 40 years to fund their benefit.

Certain plans are now popular, including 401(k) plans, cash balance pension plans, and cross-tested plans. We have much experience in implementing these plans and in obtaining IRS approval.

A recent, popular form of IRA is the Roth IRA. In this program, contributions to the IRA are not deductible, but, subject to meeting certain conditions, the benefits received from the plan are received tax free. We can advise you concerning whether you should adopt a Roth or a non-Roth program and the ramifications of each type of plan.

The government has rules concerning how distributions are to be made from the various types of plans, and their taxation. In many cases, if the plan is being terminated, or if a participant is leaving the plan for a new employer, it is possible to do a tax-free rollover of benefits to an IRA or another plan. However, requirements must be met or the distribution could be fully taxable.

If you are a plan participant who is getting divorced, or a plan sponsor whose employee is getting divorced, we can assist you in preparing or implementing a qualified domestic relations order (QDRO), whereby the divorcing spouses can divide up plan benefits between themselves on a tax-free basis.

We also have experience in handling plan terminations. The IRS has a program whereby a pension or profit-sharing plan can receive approval on its termination. With this approval, participants have assurance that they can receive their benefits, or roll them into another plan or IRA, without the danger of plan disqualification.

If you are a participant or beneficiary in a pension, profit-sharing, or fringe benefit program, we can represent you in obtaining the benefits to which you are entitled.