American Administration Services Company
A retirement plan maintained by an employer, provides retirement income to participants or a deferral of income by employees into the plan. A "qualified" plan means that the retirement plan is receives special tax treatment for meeting requirements of the Internal Revenue Code. Tax credits may help offset the cost of establishing a plan.
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Download our Retirement Plan Services brochure (.pdf file) |
AASC designs, communicates and administers all qualified plans.
- Profit Sharing Plans - offer flexibility in timing and amount of company contributions not to exceed 15% of eligible compensation. Employer contributions may be allocated among participant accounts based on a variety of formulas dictated by the objectives set forth by the plan sponsor, including Traditional, Age-Weighted, Social Security Integration, or New Comparability. An Age-Weighted Profit Sharing Plan allocates contributions based on both age and salary, rather than just on salary and may benefit older employees with fewer years to accumulate a retirement account. Cross-Tested Plan Contribution Issues.
- 401(k) Plans - A design feature of a profit sharing plan allowing employees to contribute. The company can elect to make an additional matching contribution to the employees' accounts.
- Money Purchase Plans - Provide less flexibility but larger deductible employer contributions. Contributions are stated a percentage of eligible employees salary, fixed and specified in the plan document. The maximum deductible employer contribution is 25% of covered compensation. contributions can be allocated based on a variety of formulas dictated by the objectives of the plan sponsor. Options include Traditional, Age-Weighted, Social Security Integration, or New Comparability.
- Defined Benefit Plans - Allow a company to contribute as much money as is necessary to fund the retirement benefit for the employee, per the plan document. Contributions are determined actuarially each year, are flexible and funding may be may skipped when necessary. See: FASB's proposed pension reporting rules information
- Stock Bonus Plan: Like a profit-sharing plan, except that instead of contributions being made in cash, they are made in company stock.
- Employee Stock Ownership Plan (ESOP): A plan similar to a stock-bonus plan, but with some notable differences. This plan is invested in cash or employer stock. An ESOP may borrow from the employer or use the employer's credit to acquire employer securities.
- 457 plan: A 457 plan is a non-qualified deferred compensation plan for states, counties, cities, agencies, and their political subdivisions or agencies and 501(3)(c) Organizations. A 457 is designed to provide a tax favored vehicle for participants to save for retirement and is not a qualified retirement under Federal Law; it is merely a contractual agreement between an organization and an employee wherein the organization makes an unsecured promise to defer the compensation of the employee to some future date for services currently performed by the employee and employees do not have any direct claim on the plan assets. ( Note: we do not provide design or consulting for 457 or 403(b) plans )
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403(b) Plan: A retirement plan for tax-exempt businesses (schools). It works much the same way as a 401(k), allowing employer contributions and employee salary deferrals. Investments are made in annuity contracts issues by an insurance company, in custodial accounts for mutual funds, or, in the case of church plans, retirement income accounts.
We perform many tasks to make sure your plan maintains its IRS qualified status:
- The Actual Deferral Percentage test under IRC Section 401(k)
- The Actual Contribution Percentage test under IRC Section 401(m)
- Determination of maximum contributions under IRC Section 402(g), 404 and 415
- The determination of minimum contributions under IRC Section 416
- The coverage tests under IRC Sections 410(b)
- Plus more
Three major service models for DC plans
exist, including:
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Bundled - The provider performs recordkeeping and plan administration (5500 form prep, discrimination testing, plan documents etc.). This model is preferred by mutual fund companies that also provide fund management. Plans with $1 million or more can choose from more than the provider's proprietary funds, though the percentage of outside funds affects the administrative costs and larger plans have more flexibility. Use caution as these may appear to offer free recordkeeping & administration but there is more to it, e.g. most assume the Expense Ratio of a mutual fund measures total expenses as a percentage of net assets but there are additional, less visible costs e.g. portfolio trading costs are not paid by the fund manager; assets of the portfolio are valued net of these costs. Many fiduciaries are completely unaware of these costs because they are only reported to the SEC in two cryptic ways:
- In the SAI or Statement of Additional Information but you must request it or access it via the SEC’s Edgar database. The SAI is filed electronically, not attached to the fund registration statement (semiannually). NOTE: fund families do not file for each individual fund; multiple funds are grouped together into an entity called a “registrant” and SAIs often exceed 100 pages! Extracting individual fund information is very difficult!
- In form NSAR but fund families file NSARs for groups of funds & report total brokerage commissions on an aggregate basis for all of the funds in the filing, not for individual funds!
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Unbundled - The provider/fund manager performs the recordkeeping while a local TPA does the plan administration, a model preferred by insurance companies serving the small plan markets. Fund choices are limited to those offered by the provider, which can range from 25 to 500 options, though most are not proprietary funds of the provider.
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Open Platform - The provider (usually a TPA) provides the recordkeeping and plan administration services and offers an open menu or platform of funds with few, if any restrictions on available funds.
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Bundled platforms offer the ease of only having to deal with one vendor for all services.
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Unbundled platforms are more flexible because plan administration is performed by a local TPA.
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Open platforms offer more fund & plan flexibility plus enhanced fiduciary protection.
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Please call regarding our innovative Open Platform system |
Two primary Investment Model categories
exist, including:
1. Registered Products - Otherwise known as mutual funds, they should be listed in local newspapers. There are load and no-load mutual funds, with load funds carrying extra fees. Load funds may provide the sponsor with an experienced consultant via built-in fees while no-load funds, sometimes called institutional shares (iShares) may offer lower expense ratios.
2. Unregistered Products including:
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Group annuity contracts offered by insurance companies are mutual funds with a life insurance contract wrapped around them, which allows the insurance provider to adjust the asset-based fees on a plan level. Small plans often use group annuity contracts because the provider builds in (wraps) extra expenses to cover administration.
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Cloned Funds are similar to group annuity contracts but there is no life insurance contract. The provider can adjust fees but not on a plan level. Cloned funds are generally used by insurance providers in the mid-sized plan market.
Consider the type of consultant you wish to engage: a financial advisor, third-party administrator (TPA) or benefits consultant and whether to work with a direct or advisor-sold service provider. Direct providers offer no-load funds that do not have extra expenses within the funds to pay a financial advisor. Advisor-sold plans offer load funds to pay the advisor. No-load funds are 25 to 100 basis points less than load funds (100 basis points equals 1%). Consultant fees for help evaluating and selecting vendors can run $15,000 to six figures to help with direct providers. Advisor-sold consultants normally receive a commission from the funds.
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Retirement Plan and Investment Funds Basics for Participants |
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IRS Form 8880, Credit for Qualified Retirement Savings Contributions printable fill-in .pdf form (.pdf file)
Nonqualified plans can discriminate in favor of highly compensated and key employees.
ç see: Bush Retirement Plan Proposals
ç Current retirement plan compliance issues
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Retirement Plan Services brochure (.pdf file) |
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Are all of your SPDs current and in full compliance? Do you issue timely SoMMs? |
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We take governmental regulations and compliance seriously & we deliver "outsourcing solutions" customized to your specific objectives. Are your plans subject to ERISA? |
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Important Government Information: Social Security Fact Sheet & Plan Limitations |
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Do YOU have a current Investment Policy Statement (IPS)? |
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Commonly used Employee Benefit Acronyms & Terms and what they actually mean |
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