One of the most effective means of attracting and retaining competent employee is by offering employee benefits. A pension plan is one of the most attractive benefits. No matter how big or small your business is, there's a pension plan that's appropriate for you.
SIMPLIFIED EMPLOYEE PENSION PLAN
The Simplified Employee Pension Plan (SEP) is a plan often used by small business. It really is simple, because you:
May establish it by completing a few items on a standard IRS form
(IRS form 5305-SEP) or a form provided by the financial institution.
Make contributions for your employees directly into their
Individual Retirement Account
Can adjust the amount of contribution made each year
There is also a variation of the SEP which is funded by employee contributions: the Salary Reduction SEP (SAR-SEP). SEP's and SAR-SEP's generally only have nominal fees, if any. You provide any administration necessary for the ongoing maintenance of the plan.
KEOGH PLANS
Also called HR-10 or Self Employed Individual Retirement Plans (SEIRPs), Keogh Plans can be used only by unincorporated businesses. Under a Keogh plan:
You make contributions for your employees into one or more
pooled investment funds
A plan administrator (bank, investment firm, etc.) provides bookkeeping and
other support
Fees may be charged for administration, bookkeeping, and the movement of funds. These fees may vary widely.
401(k)PLANS
This is probably the best known type of retirement plan. It is a pension plan for corporations through which:
Employees defer pretax compensation into one or more investment options
You may match all or part of your employees' contributions (at your choice)
Withdrawals may be allowed under limited circumstances
Employees may borrow against their contributions
There are strict government regulations concerning the rates at which employees may contribute. These rules are not simple and require monitoring to ensure that the plan remains qualified under IRS rules. Because of the extensive administrative and bookkeeping work required, fees are generally higher than for SEP and Keogh plans. Depending upon the provider, a 401(k) may not be cost effective for businesses with fewer than 50 employees.
Always consult your tax advisor before establishing any pension plan.
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