Question

Mark's financial planner has recommended a retirement plan for implementation at Mark's business in 2021. He tells Mark the plan must cover all employees who are at least 21 and have worked for Mark for three of the last five years (part-time employment counts). Contributions must be made for employees who earned at least $650 (2021) in the prior year. The plan can exclude union members if they have their own retirement plan.

Which type of plan has Mark's planner recommended?
1. Profit-Sharing Plan
2. Money Purchase Pension Plan
3. 401(k) plan
4. SIMPLE IRA

Answer 1

Mark's financial planner recommended a 401(k) plan, which is an employer-contributed, tax-deferred, and portable retirement savings plan that allows employees to exclude union members with their own plans.

Step-by-step explanation:

The retirement plan recommended by Mark's financial planner seems to be a 401(k) plan. This type of plan involves employer contributions to an employee's retirement account on a regular basis, which the employee can also contribute to. These funds can be invested in various investment vehicles. 401(k)s are defined contribution plans, which are tax-deferred and portable between employers, ensuring that employees can take their retirement savings with them when they change jobs. Unlike traditional pension plans, they aim to protect retirees from inflation costs, and contributions can be made in such a way to exclude certain employees, like union members with their own plans, matching the criteria given in the question.