QRPs FOR ALL AGES
Qualified Retirement Plans (QRPs) are eligible for tax benefits sanctioned by the Internal Revenue Service. Employers may choose from several qualified plans, with varying levels of contributions affecting the allowable amount of tax deductions. The following are the most familiar qualified plans:
- A Profit-Sharing Plan has no fixed amount of contributions an employer must make to the employee's retirement account. New businesses and companies subject to widely fluctuating earnings prefer this option.
- Firms with younger employees might prefer a Defined Contribution Pension Plan, under which the retirement benefits provided to the employees do not change. If the cost of the established benefits package rises, employers can pay the difference as a fringe benefit for their employees. The plan's preestablished contribution formula and retirement benefits depend on what services the plan's total contributions can fund at retirement time- which means that younger employees gravitate to this type of plan because they anticipate a long career in which to accumulate funds.
- Older employees are inclined to choose a Defined Benefits Plan because a formula determines how much they must contribute to obtain certain promised benefits. These benefits may change because a certain amount of money may have the same purchasing power today as it did when the plan was established. Companies that want a fixed contribution to their employees' benefits prefer this type of plan, even though each employee may receive smaller benefits for the money as time passes. Companies must contribute higher amounts for older employees than younger employees to afford imminent retirement benefits.