Retirement Plan Questions.
Unsure of which plan was the best fit for their company.
Smith Schafer Approach
A new client recently came to us looking for help in establishing a RETIREMENT PLAN for his business. His company has 40 part-time employees and only three full-time employees, two of which are he and his wife. He asked about the best retirement plan options, both for the company and for himself as an employee saving for retirement.
We discussed a few different retirement plan options with our client. The 401(k) plan is the most well-known, but it is also the most costly since there are additional administrative requirements to set up and maintain the plan. A SEP plan is much easier to set up and operate and the administrative costs are low, but only the employer can contribute to a SEP plan. In addition, the employer is required to contribute equally for all employees.
After some discussion, we recommended this business establish a SIMPLE plan. SIMPLE plans do not have the start-up and operating costs of a conventional retirement plan so they are more economical for a small business. These plans allow employees to contribute, which shifts the responsibility for retirement planning from the company to the employee. The company is required to make contributions to a SIMPLE plan, but there are two options available:
- Match employee contributions up to 3 percent
- Make a nonelective 2 percent contribution for all employees
Our client agreed with our recommendation to start a SIMPLE plan. He felt this gave employees, including him, the most flexibility in saving for retirement, but was also the most cost-effective solution for his business.
Smith Schafer Service