Page 177 - Essentials of Payroll: Management and Accounting

ESSENTIALS of Payr oll: Management and Accounting
T IPS &T ECHNIQUES

A company could be laying itself open to a lawsuit if it makes some
types of deductions from employee pay checks without their author-
ization. The best way to avoid this problem is to have employees
sign an authorization notice that clearly specifies the amount and
type of any deductions, as well as the start and stop dates for the
deductions. An example of such a form is noted in Exhibit 6.2.

Pension Plan Benefits 2

There is an enormous variety of retirement plans available, each of
which has a slightly different treatment under the tax laws, resulting in
varying levels of investment risk to the employee or different levels of
administrative activity. In this section, we will give a brief overview of
each type of retirement plan.

Qualified Retirement Plan

A qualified retirement plan is one that is designed to observe all of the
requirements of the Retirement Income Security Act (ERISA), as well
as all related IRS rulings. By observing these requirements, an employer
can immediately deduct allowable contributions to the plan on behalf
of plan participants. Also, income earned by the plan is not taxable to
the plan. In addition, participants can exclude from taxable income any
contributions they make to the plan, until such time as they choose to
withdraw the funds from the plan. Finally, distributions to participants
can, in some cases, be rolled over into an Individual Retirement

Account (IRA), thereby prolonging the deferral of taxable income.
There are two types of qualified retirement plans, which are as follows:

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