Mirror Plans are designed to "mirror" a 401(k) Plan. These Defined-Contribution Plans are designed to trigger when the 401(k) Plan's annual deferral limit is reached. These programs are funded by voluntary employee deferrals and typically include an employer match similar or identical in formula to the 401(k) Plan. The menu of investment options is typically similar to the 401(k) Plan as well.

The 401k mirror plan, also known as a 410b Carve-Out Plan is used with employers who have "Top Heavy" Qualified Plans. A top heavy plan refers to qualified 401k plans that heavily discriminate against the highly compensated executives. Under these arrangements, the "Top Hat" group is "Carved Out" of the 401(k) and/or other Qualified Plans, and a Mirror Plan is established for this group. Carve-Out Plans satisfy Compliance and Testing problems that the employer may have with traditional Qualified Plans. They also provide a Non Qualified Plan for the "Top Hat" group.

Benefits to the "Top Hat" Employees

• The ability to defer unneeded compensation until retirement, disability, hardship, death and or termination of employment.
• Earnings are also deferred and not taxed to the executive until recieved.
• The corporation can add a matching contribution to the plan.
• Since this is a Non Qualified plan, the executive can defer compensation in excess of the qualified plan limitations.
• Non Qualified Deferred Compensation plans are not subject to the 10% premature distribution penalty imposed by the IRS for those under 59 1/2 as with qualified plans such as a 401(k).
• The plan can be set up to provide death benefits to the executives survivors.
• Without the onerous requirements of ERISA, plan provisions such as vesting, survivorship benefits, measure of benefit and method of benefit payments are flexible and subject to negotiation between the business and the executive.

Benefits to the Corporation

• Non Qualified deferred compensation plans avoid most of the cost and administrative requirements associated with establishing a qualified plan under ERISA.
• No need to comply with the anti-discrimination provisions of qualified plans, as long as participation is limited to the "Top Hat" group as defined under ERISA.
• The corporation is able to pick and choose who will participate in the plan.
• The corporation, subject to reasonable compensation limits can provide an unlimited benefit to select executives.
• If a hybrid plan is used, the corporation can add a vesting schedule on its matching contributions.

The most commonly used vehicle for funding a 401(k) Mirror plan is Coprorate Owned Life Insurance. For a FREE copy of our guide to COrporate Owned Life Insurance, click here or the link at the top of each page on this site labeled Request FREE Information Kit.