Retirement Plan Chart

Whether your business is large or small, you need to provide attractive benefits to retain your best employees. Farmers & Merchants Bank can help with Individual Retirement Accounts and Simplified Employee Pension Plans.

Farmers & Merchants investment department can help with a full range of retirement plan options. Contact us and our investment professionals will discuss your specific needs.

A reference chart is included below to help you determine which kind of retirement plan might be best for your business.

Contact us and our IRA experts will discuss your needs with you.

Retirement Plan Chart:

Retirement Plans

Simplified Employee Pension (SEP)

Employer Characteristics:
All taxable businesses, but appeals to small employers. Government entities and tax-exempt organizations also.

Who MUST be covered?
Any employee who has worked for three out of the past five years and is age 21 or older is eligible; employer can exclude certain employees.

Maximum annual combined contribution that the employer may deduct:
25% of employee’s pay up to $45,000

Maximum annual allocation to employee’s account (includes both employer and employee contributions)
25% of employee’s pay up to $45,000

Maximum annual employee deferral
No employee contributions allowed.

Contribution allocation formulas
1) Nonintegrated allocation, based on a ratio of participant’s compensation over total compensation for all participants.
2) Integrated with Social Security.

Required employer contribution
None; a minimum allocation may be required if a contribution is made and plan is top-heavy.

Vesting (pretax employee contributions are always 100% vested)
Immediate 100% vesting.

Who controls distributions?
Employee.

Advantages of this type of plan
Minimal paperwork
Minimal tax filing
No requirement to make ongoing contributions

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Simple IRA

Employer Characteristics:
No more than 100 employees; all taxable businesses; government entities; tax-exempt organizations.

Who MUST be covered?
Any employee earning $5,000 during any two preceding years and who is expected to earn $5,000 in the current year; can exclude certain employees.

Maximum annual combined contribution that the employer may deduct:
$26,000 ($10,500 deferral plus $10,500 maximum match; $2,500 catch-up contribution and $2,500 matching contribution, if applicable)

Maximum annual allocation to employee’s account (includes both employer and employee contributions)
$26,000

Maximum annual employee deferral
$10,500; catch-up contributions of $2,500 if age 50+.

Contribution allocation formulas
N/A.

Required employer contribution
a) Dollar-for-dollar match up to 3% of pay OR b) 2% of gross pay for eligible employees who earn at least $5,000 during the year.

Vesting (pretax employee contributions are always 100% vested)
Immediate 100% vesting.

Who controls distributions?
Employee.

Advantages of this type of plan
Minimal paperwork
Minimal tax filing
Employee deferral of current taxes
More flexibility with contribution amounts due to increase in deferral limit

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Profit Sharing

Employer Characteristics:
All taxable businesses, government entities and tax-exempt organizations

Who MUST be covered?
Any employee with 1,000 hours of service within one year and who is age 21 or older; can exclude certain employees.

Maximum annual combined contribution that the employer may deduct:
25% of total eligible payroll (maximum eligible pay per employee is $225,000)

Maximum annual allocation to employee’s account (includes both employer and employee contributions)
100% of employee’s total pay up to $45,000

Maximum annual employee deferral
No employee contributions allowed.

Contribution allocation formulas
1) Nonintegrated allocation, based on a ratio of participant’s compensation over total compensation for all participants.
2) Integrated with Social Security.
3) Cross-tested (can be age-weighted or tiered)

Required employer contribution
Flexible contribution allowed each year (preset amount not required); however, employer must make “substantial and recurring” contributions.

Vesting (pretax employee contributions are always 100% vested)
Vesting schedules.

Who controls distributions?
Employer, through the plan terms

Advantages of this type of plan
Flexible contributions

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Money Purchase

Employer Characteristics:
All taxable businesses, government entities and tax-exempt organizations.

Who MUST be covered?
Any employee with 1,000 hours of service within one year and who is age 21 or older; can exclude certain employees.

Maximum annual combined contribution that the employer may deduct:
25% of total eligible payroll (maximum eligible pay per employee is $225,000)

Maximum annual allocation to employee’s account (includes both employer and employee contributions)
100% of employee’s total pay up to $45,000

Maximum annual employee deferral
No employee contributions allowed.

Contribution allocation formulas
1) Nonintegrated allocation, based on a ratio of participant’s compensation over total compensation for all participants.
2) Integrated with Social Security.
3) Cross-tested (can be age-weighted or tiered)

Required employer contribution
Amount stated in plan document (same percentage contribution required each year)

Vesting (pretax employee contributions are always 100% vested)
Vesting schedules

Who controls distributions?
Employer, through the plan terms

Advantages of this type of plan
Specified level of contributions

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Defined Benefit

Employer Characteristics:
All taxable businesses, government entities and tax-exempt organizations.

Who MUST be covered?
Any employee with 1,000 hours of service within one year and who is age 21 or older; can exclude certain employees.

Maximum annual combined contribution that the employer may deduct:
Contribution is limited to amount necessary to fund future benefits (maximum eligible pay per employee is $225,000)

Maximum annual allocation to employee’s account (includes both employer and employee contributions)
No individual accounts

Maximum annual employee deferral
No employee contributions allowed.

Contribution allocation formulas
N/A

Required employer contribution
Contributions based on anticipated payouts during retirement and actuarial assumptions

Vesting (pretax employee contributions are always 100% vested)
Vesting schedules

Who controls distributions?
Employer, through the plan terms

Advantages of this type of plan
Annual benefit on retirement can be as high as 100% of highest thee-year average pay, up to $165,000; provides guaranteed annuity payments for life

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401(k)

Employer Characteristics:
All taxable businesses and tax-exempt organizations.

Who MUST be covered?
Any employee with 1,000 hours of service within one year and who is age 21 or older; can exclude certain employees.

Maximum annual combined contribution that the employer may deduct:
25% of total eligible payroll (maximum eligible pay per employee is $225,000) plus the amount of elective deferrals contributed

Maximum annual allocation to employee’s account (includes both employer and employee contributions)
100% of employee’s total pay up to $45,000

Maximum annual employee deferral
Up to $15,500; catch-up contribution of $5,000 if age 50+

Contribution allocation formulas
1) Nonintegrated allocation, based on a ratio of participant’s compensation over total compensation for all participants.
2) Integrated with Social Security.
3) Cross-tested (can be age-weighted or tiered)

Required employer contribution
Discretionary, unless the plan is top-heavy

Vesting (pretax employee contributions are always 100% vested)
Vesting schedules

Who controls distributions?
Employer, through the plan terms

Advantages of this type of plan
Employee deferral of current taxes available
Flexible contributions
More flexibility with contribution amounts due to increase in deferral limit

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401(k) with safe harbor provisions

Employer Characteristics:
All taxable businesses and tax-exempt organizations.

Who MUST be covered?
Any employee with 1,000 hours of service within one year and who is age 21 or older; can exclude certain employees.

Maximum annual combined contribution that the employer may deduct:
25% of total eligible payroll (maximum eligible pay per employee is $225,000) plus the amount of elective deferrals contributed

Maximum annual allocation to employee’s account (includes both employer and employee contributions)
100% of employee’s total pay up to $45,000

Maximum annual employee deferral (Annual participant deferral can be before-tax, Roth after-tax, or both, depending on plan terms)
Up to $15,500; catch-up contribution of $5,000 if age 50+

Contribution allocation formulas
For non-safe harbor contributions, use the same formulas as 401(k)s

Required employer contribution
One of the following:
-Basic match formula
-Enhanced match formula
-Nonelective contribution

Vesting (pretax employee contributions are always 100% vested)
Immediate 100% vesting on safe harbor contributions

Who controls distributions?
Employer, through the plan terms

Advantages of this type of plan
No discrimination testing
Employee deferral of current taxes available
More flexibility with contribution amounts due to increase in deferral limit

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403(b)

Employer Characteristics:
Organizations qualified under Internal Revenue Code section 501(c)(3), such as schools and nonprofit organizations.

Who MUST be covered?
After the first employee is allowed to participate, all other employees who want to contribute at least $200 per year must be allowed to participate, regardless of years of service.

Maximum annual combined contribution that the employer may deduct:
Tax deduction is not an issue for tax-exempt organizations

Maximum annual allocation to employee’s account (includes both employer and employee contributions)
100% of employee’s total pay up to $45,000

Maximum annual employee deferral (Annual participant deferral can be before-tax, Roth after-tax, or both, depending on plan terms)
Up to $15,500; catch-up contribution of $5,000 if age 50+

Contribution allocation formulas
N/A

Required employer contribution
Amount stated in plan document; can be discretionary or non-discretionary

Vesting (pretax employee contributions are always 100% vested)
Vesting schedules – many immediate 100%

Who controls distributions?
Employer, through the plan terms

Advantages of this type of plan
Employee deferral of current taxes
More flexibility with contribution amounts due to increase in deferral limit

Securities and Insurance Products:

Not Insured By FDIC or any Federal Government Agency

May Lose Value
Not a Deposit of or Guaranteed by the Bank or any Bank Affiliate

Securities and insurance offered through INFINEX INVESTMENTS, INC., member FINRA and SIPC. INFINEX INVESTMENTS, INC. is not associated with Farmers & Merchants Bank. Farmers & Merchants Financial Services, Inc. is a non-bank affiliate of Farmers & Merchants Bank.

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205 S. Main St.     P.O. Box 1111     Timberville, VA 22853     (540) 896-8941