Floor Offset Plan

A floor offset plan is a combination of a Defined Benefit and a Profit-Sharing plan. The company can also attach a safe harbor 40I(k) option to maximize benefits for both the owners and employees. This type of plan is more suitable for owners who are closer to retirement and employees who have many more years until retirement. ‘These two plans are cross-tested to satisfy minimum coverage and non-discrimination testing according to the guidelines of the IRS. Both plans provide flexibility to all participants in the plan to invest as per their individual risk tolerance.

Typically, owners of the company and key executive employees receive a benefit under the Defined Benefit plan and employees receive benefits under the Profit-Sharing plan. Under the Defined Benefit plan, employers can maximize their contributions and significantly reduce their corporate tax liability with huge annual contributions from the employer’s company profits. Alternatively, employers’ contribution to the employees provides at least 5% of the salary to all eligible employees which is also tax deductible at the corporate level.

This combination plan attracts employees as the 40I(k) contribution is made from the employee’s paycheck. This contribution is fully vested and helps reduce employee’s salary and individual tax liability. The Safe Harbor employer contributions are also fully vested, which guarantees some financial savings for retirement. Additionally, the Profit-Sharing contributions are on a vesting schedule to encourage employees to work for a longer period in the company. This is also beneficial to the owner for retaining and incentivizing employees that work harder.