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Many businesses at some point will consider the implementation of a company retirement plan.  Depending on the specific needs of the employer, decisions can be made as to what will best suite the business.  A retirement plan may have several benefits to the employer such as tax deductions, tax deferred growth, flexible plan options, tax credits or other incentives.  Keep in mind that a retirement plan may also attract and retain employees.

Let’s also consider the employee benefits of a plan.  Again, contributions may be made on a pre-taxed basis, tax on gains are deferred until distribution, contributions can be made automatically out of payroll, the retirement assets are transferrable under specific guidelines and this ultimately provides a retirement nest egg for the employees. 

We will help you identify the most common plans available to help you determine what may be best for your situation.  If you have any additional questions or would like assistance on how to create your own business retirement plan, please contact our office and we will do everything possible to assist you.

Note: Before we show you the different retirement plan options, please understand that there are two major types of plans, defined benefit and defined contribution.  

Defined by the United States Department of Labor: www.dol.gov/ebsa/publications/wyskapr.html#chapter1
A defined benefit plan, funded by the employer, promises you a specific monthly benefit at retirement.  The plan may state this promised benefit as an exact dollar amount, such as $100 per month at retirement.  Or, it may calculate your benefit through a formula that includes factors such as your salary, your age, and the number of years you worked at the company.  For example, your pension benefit might be equal to one percent of your average salary for the last five years of employment times your total years of service.

A defined contribution plan, on the other hand, does not promise you a specific benefit amount at retirement.  Instead, you and/or your employer contribute money to your individual account in the plan.  In many cases, you are responsible for choosing how these contributions are invested, and deciding how much to contribute from your paycheck through pretax deductions.  Your employer may add to your account, in some cases by matching a certain percentage of your contributions.  The value of your account depends on how much is contributed and how well the investments perform.  At retirement, you receive the balance in your account, reflecting the contributions, investment gain or losses and any fees charged against your account.

 

 

Here are some common plans which may suite your needs.

Traditional 401(K) Plan-In This type of defined contribution plan, the employee can make contributions from his or her paycheck before taxes are taken out.  The contributions go into a 401(K) account, with the employee often choosing the investments based on options provided under the plan.  In some plans, the employer also makes contributions, matching the employee’s contributions up to a certain percentage.  SIMPLE and safe harbor 401(K) plans have additional contribution and vesting requirements.

Safe Harbor 401(K) Plan-A safe harbor 401(K) is similar to a traditional 401(K) plan, but the employer is required to make contributions for each employee.  The employer contributions in safe harbor 401(K) plans are immediately 100% vested.  The safe harbor 401(K) eases administrative burdens on employers by eliminating some of the complex tax rules ordinarily applied to traditional 401(K) plans.

Automatic Enrollment 401(K) Plan-Employers can automatically enroll employees in a plan, such as a 401(K) or SIMPLE IRA plan, and place contributions deducted from the employee’s paycheck into certain predetermined investments, unless the employee’s decide otherwise.  Participants have the opportunity to opt out of participation and periodic opportunities to change their investments (or in a SIMPLE IRA, the financial institution where the contributions are invested).

Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)-A plan in which a small business with 100 or fewer employees can offer retirement benefits through employee salary reductions and matching contributions (similar to those found in a 401(K) plan).  It can be either a SIMPLE IRA or a SIMPLE 401(K).  SIMPLE IRA plans impose few administrative burdens on employers because IRAs are owned by the employees and the bank or financial institution receiving the funds does most of the paperwork.  While each has some different features, including contribution limits and the availability of loans, required employer contributions are immediately 100% vested in both.

Simplified Employee Pension Plan (SEP)-A plan in which the employer makes contributions on a tax-favored basis to individual retirement accounts (IRAs) owned by the employees.  If certain conditions are met, the employer is not subject to the reporting and disclosure requirements of most retirement plans.  Under a SEP, an IRA is set up by or for an employee to accept the employer’s contributions.

Employee Stock Ownership Plan (ESOP)-A type of defined contribution plan that is invested primarily in employer stock.

Money Purchase Plan-A money purchase plan requires set annual contributions from the employer to individual accounts and is subject to other rules.

Profit Sharing Plan-A profit sharing plan allows the employer each year to determine how much to contribute to the plan (out of profits or otherwise) in cash or employer stock.  The plan contains a formula for allocating the annual contribution among the participants.


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