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Employer Retirement Plan Options

There are several options for employers to consider when offering a retirement plan including SIMPLE IRAs, 401(k) plans, profit sharing plans, SEP plans, payroll deduction IRAs, and state-run plans. SIMPLE IRAs require employer matching contributions but have lower costs than 401(k) plans. 401(k) plans allow higher employee contributions but have higher administrative fees. Profit sharing and SEP plans offer flexibility in employer contributions but have more requirements. Payroll deduction IRAs and state-run plans provide retirement savings options without an employer plan.

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251 views2 pages

Employer Retirement Plan Options

There are several options for employers to consider when offering a retirement plan including SIMPLE IRAs, 401(k) plans, profit sharing plans, SEP plans, payroll deduction IRAs, and state-run plans. SIMPLE IRAs require employer matching contributions but have lower costs than 401(k) plans. 401(k) plans allow higher employee contributions but have higher administrative fees. Profit sharing and SEP plans offer flexibility in employer contributions but have more requirements. Payroll deduction IRAs and state-run plans provide retirement savings options without an employer plan.

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#6: Retirement plan.

There are a number of options available to employers that are considering offering a retirement

plan, some of which include:

 SIMPLE IRA: The Savings Incentive Match Plan for Employees (SIMPLE) is a tax-favored

retirement plan that allows both employees and employers to contribute to traditional IRAs. Employers

must make a matching contribution to participating employees (between one and three percent depending

on the circumstances) or contribute two percent of each employee's compensation. Employer

contributions are generally tax deductible to the employer. Tax credits of $500 for the first three years of

the SIMPLE IRA plan may be available to employers to offset the costs of establishing and administering

the plan.

 401(k) Plan: A 401(k) plan allows both employers and employees to make contributions toward

retirement savings. Unlike a SIMPLE IRA, there is no employer contribution requirement. Compared

with IRA-based plans, the 401(k) plan is attractive to employees because the maximum contributions are

generally higher than the SIMPLE IRA. However, 401(k) plans may have higher administrative costs

than IRA-based plans because 401(k) plans are more complicated to maintain.

 Profit Sharing: A profit-sharing plan can be an attractive retirement savings plan option for

employers that have concerns about cash flow. With this type of plan, the employer can decide from year

to year whether (and how much) to contribute to the plan based on what they can afford in that particular

year. However, these plans tend to have higher administrative costs and more requirements than SIMPLE

IRA plans or SEP Plans (see below).


 SEP Plan: A Simplified Employee Pension (SEP) plan is a retirement plan where an IRA is

established for each employee, which is funded solely through company contributions. A business

establishing an SEP Plan may decide whether, and how much, to contribute each calendar year up to a

certain amount set by the IRS. Qualified employers may also be eligible for a tax credit ($500 per year for

the first three years of the plan) for establishing a SEP Plan and employer contributions are tax deductible

on the employer's tax return.

 Payroll Deduction IRA: A payroll deduction IRA (Individual Retirement Account) allows

employees to save for retirement without an employer-sponsored retirement plan. The employee

establishes the IRA with a financial institution and then authorizes the employer to make payroll

deductions from the employee's salary and contribute them to the IRA.

 State-Run Plan: Several states, such as California, Connecticut, Illinois, Maryland, and Oregon,

have enacted legislation that creates a state-run retirement program that workers in the private sector can

join. These programs are designed for employees whose employers don't offer a retirement plan. While

run by the state, these programs typically still impose some obligations on employers, such as

withholding employee contributions and remitting them to the plan. Some require employers to

automatically enroll employees in the plan. Check your state law to ensure compliance.

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