• Contributions to the plan am deductible by the employer when made, but not taxed to the employee until distributed. ' Funds accumulate tax-deferred for retirement ' Attracts qualified employees and retains existing employees
• Encourages loyalty among existing employees by requiring a specified number of years of service before an employee is entitled to employer contributions (known as vesting)
• Offers a benefit competitive with other companies that offer qualified plans
• Usually very favorable for self-employed individuals
• Funds accumulated in a plan are not subject to the claims of either the employee's or employer's creditors
• Certain plans allow employees to make plan contributions on a pre-tax basis

Retirement Plan Disadvantages

• Some plans must meet complex requirements to keep the plan's tax favored status
• Some plans are expensive and time-consuming to operate
• Some plans are subject to special top-heavy rules that require minimum contributions for lower-paid employees and more rapid vesting of benefits
• Some plans must file Form 5500
• Plan fiduciaries, including the plan administrator, must act in the best interest of participants and beneficiaries. Fiduciaries are not only subject to significant penalties if they breach this responsibility, they may also be personally liable for any losses to the plan resulting from the breach
• Depending on the type of plan, an annual contribution may be required

QUALIFIED RETIREMENT PLAN TYPES
Defined benefit plans promise specific benefits at retirement. For example, the plan might promise to pay an employee at retirement 80% of his average salary for the last five years of employment. The employer is required to make annual contributions to fund this benefit. This amount must be determined by an actuary.

Defined contribution plans provide benefits based on the amount contributed to an employee's individual account plus any earnings or forfeitures of other employees that are allocated to the account. The amount available at retirement equals whatever is in the employee's account at that time.

Defined contribution plans include:

• Profit-sharing plans.
• Money purchase pension plans.
• 401 (k) plans.

PAYROLL DEDUCTION IRAS

Payroll deduction IRAs are an economical way to encourage employees to save for retirement, in effect, the employer collects employee IRA contributions and transmits them to the custodian or trustee.

Contributions cannot exceed the lesser of the employee's compensation or $4,000 for 2007 ($5,000 if age 50 or older).

SIMPLIFIED EMPLOYEE PENSIONS (SEPS)

• An SEP allows an employer to make contributions to employees' IRAs. Although designed for small businesses, any employer, regardless of its size or number of employees, may establish an SEP. Contributions paid to an SEP are deductible by the employer and excluded from the employees' income until withdrawn
• Employees who are age 21 or over, performed services for the employer for at least three of the immediately preceding five years and received at least $500 from the employer must be allowed to participate
• For 2007, contributions are generally limited to $45,000 or, if less, 25% of the participant's compensation and generally must be made pro rata to all participants.

SIMPLE IRA PLANS

• SIMPLE IRA plan is a salary reduction arrangement under which employees can elect to have part of their paychecks contributed to an IRA
• SIMPLE IRA plans must cover all employees who received at least $5,000 in compensation from the employer during any two prior years, and who are reasonably expected to receive that much or more in the current year
• A SIMPLE IRA plan can only be established by an employer that had 100 or fewer employees earning at least $5,000 during the preceding calendar year
• Employee elective deferrals are limited to $10,500 ($13,000 if age 50 or older) for 2007. Employers must generally make either 3% matching or 2% non-elective contributions