Retirement Plans

Providing retirement benefits is a competitive advantage when competing for top industry performers. It helps employees save for their future in a pain-free way and enjoy some tax advantages as well. Retirement plans also have a key advantage of allowing the business owner to take advantage of this asset as well.

Retirement plans that meet stringent Internal Revenue Code (IRC) and Employee Retirement Income Security Act of 1974, as amended, (ERISA) requirements also provide desirable tax benefits for employees and employers. One popular type is the 401(k) defined contribution plan, in which the employee’s annual contribution is excludable from gross income, up to a stipulated percentage of the annual wage or salary paid. An additional tax advantage to the employee, who is responsible for directing the investment in his or her account, is deferring taxes on any earnings until distributed. Likewise, the employer’s contribution to the individual’s account is a deductible business expense.

As an employer, you most likely are concerned with your employees’ well-being and security. Beyond the typical health insurance benefits, retirement benefits are an integral part of an employee’s overall compensation. Giving employees a sense of security regarding their retirement can be beneficial for both you, and the employees. It can demonstrate to quality employees, or prospective employees, that your concern for their welfare extends beyond the office walls, and their years of service. A qualified financial advisor will help benchmark the different retirement plan choices to determine competitiveness and match the options with your goals. The most popular choices include profit-sharing plans, 401K plans, Simplified Employee Pensions (SEPs), SIMPLE plans, target benefits plans, and Keogh plans.

Pension Plans (defined benefit, defined contribution, or profit-sharing)
Provide employees with a retirement benefit, payable based on the employee’s length of service, salary, and a benefit formula that typically calculates the average of the employee’s earnings over a prescribed period of time.

401(k) Plans
Provide employees the opportunity to contribute a percentage of pre-tax salary, with restrictions, into a retirement fund. An employer has the option of matching contributions, up to a predetermined percentage and subject to a maximum.

Simplified Employee Pensions (SEPs)
Are a common retirement plan option for employers with 100 employees or fewer. In SEPs, employers utilize Individual Retirement Accounts (IRAs) as a way of providing employees with a pension benefit.

Savings Incentive Match Plan for Employees (SIMPLEs)
Are also designed for employers with 100 or fewer employees, and utilize either IRAs or 401(k)s.

Many small business owners steer away from retirement plans because they believe that administering the plan will be time-consuming and costly, and will entail expensive professional assistance. Although professional assistance is necessary, a financial advisor can find easily administered plans with little direct expense to the employer.