Qualified plans may be beneficial to both business owners and employees. Business owners may benefit from tax-deductible plan contributions (employer plan contributions are deductible from business income and excluded from the employer’s share of Federal Insurance Contributions Act, or FICA, payroll taxes) and an increased competitive ability to recruit and retain qualified employees. There are many plan choices, which may be preferentially beneficial to different employee demographics:
- Defined benefit pension plans and target benefit pension plans tend to be more beneficial for older employees.
- Cash balance pension plans and money purchase pension plans tend to be more beneficial for younger employees.
- Profit-sharing plans tend to be more beneficial for younger and highly compensated employees.
- Age based profit-sharing plans tend to be more beneficial for older and highly compensated employees.
- Stock bonus plans and employee stock ownership plans (ESOPs) tend to be more beneficial for long length of service and highly compensated employees.
- 401(k) plans and after tax thrift plans tend to be more beneficial for younger employees and savers.
- New comparability plans tend to be more beneficial for owner-employees.