Employees are the backbone of business despite its size. Catering to their needs while they work is as important as taking care of them after they retire. Choosing the best retirement plan is not an easy task.
Especially when you know that your decision will impact the lives of your former employees when they are not capable to work anymore.
The best retirement plan for you and your employees will benefit both your company and its workers. Let us help you decide which retirement plan to offer your employees by sharing the most important facts to know about each one of them.
Simplified Employee Pension Plan
A Simplified Employee Pension plan, or simply SEP, is one of the most popular retirement plans. Why? Because it is very simple to administer thus reducing administrative costs. It doesn’t require a company to submit annual IRS forms.
It is not advised to go with a SEP if you experience high employee turnover. With an active SEP, employees are not able to defer income, and they are 100% dependant on the employer paying premiums to their SEPs.
Savings Incentive Match Plan for Employees IRA Plan
Savings Incentive Match Plan for Employees, or the SIMPLE IRA plan, is also light on the administration. SIMPLE IRA is funded by pretax employee contributions and tax-deductible employer contributions.
This plan offers more benefits then SEP, such as the employee’s ability to defer income by making salary reduction contributions and a significantly smaller contribution required from an employee. So, with this plan, employees still depend on the employer which is why experts don’t recommend SIMPLE IRA to verticals battling with high turnover.
Unlike SEP and SIMPLE IRA plans, Qualified plans are heavy on the administration, and a company will have to submit regular reports. On the other hand, qualified plans enable loan provision and in-service withdrawals, which are not available via SEP or SIMPLE IRA. The qualified plans encompass the two following categories:
- Defined Benefit Plans (Pension Plans)
With this plan, your employees will be able to receive a steady income once they retire. The amount depends on the length of their service and earnings portfolio. Employees are required to annually meet the minimum funding requirement.
- Defined Contribution Plans
This plan allows employees to contribute to each employee individually. Two types of defined contribution plans are profit sharing and money purchase plans. The profit-sharing plan allows the employee to be flexible when contributing to the plan, while money purchase plan contributions are made each year, and they are determined by a fixed percentage. The profit sharing plan can also come equipped with a 401(k) feature, allowing employees to decide to have a portion of their pretax compensation contributed to their account.
Which Plan to Offer to Your Employees?
Before you offer a retirement plan to your employees, you must make sure that your company can afford it in terms of finances and administrative requirements. You should also asses the eligibility of employees, but also take employee turnover, withdrawal limits, and timing into account.
These are all factors you have to consider before you decide which retirement plan to offer to your employees.
For more information on these plans, reach out to Melton