For the longest time a retirement plan was the most important employee benefit to offer. Today it is number two behind health insurance which is mandated by law. Still, it is a sought after benefit by employees and an excellent recruitment and retention tool for employers. There are two broad groups of retirement plans.
Sections 401 through 408 of the Internal Revenue Code promulgates the Federal law in regards to retirement plans. These plans are offered as a benefit to employees for the purpose of retention and long term benefits for qualified employees. In business, the second purpose of existence is to maintain employment and create a bond between employer and employee. Retirement plans are an essential tenant of this bond.
The American Benefits Council estimates that about 80% of all American workers have access to an employer sponsored retirement plan. This means that 20% of the workforce has no access to a formal retirement plan. To alleviate this issue, Congress created laws allowing those with earned income access to a retirement via Individual Retirement Accounts or more commonly called IRA’s.
There are several different retirement plans available to the small business owner. But no plan offers so many advantages to small business as the Simple retirement plan. The positive attributes include: 1) Easiest to understand, 2) Least amount of paperwork, 3) No compliance reporting and 4) Plenty of flexibility. If you are in business and have less than 25 employees, this is your best option to include a great benefit for your employees. This article describes this form of a retirement plan and Section 408 of the Internal Revenue Code, identifies the advantages, and concludes with a comprehensive example. In addition, I explain how to fill out the proper document to begin the plan.
This is a plan within an allowed set of plans under Section 408 of the Internal Revenue Code. All of us have heard of Section 401(k) plan. The Internal Revenue Code dedicates Sections 401 through 408 to codifying retirement plans. Within Section 408 are the easier to understand retirement plans. They include Simplified Employee Plans (SEPs), Salary Reduction Simplified Employee Plans (SARSEPs) and the Savings Incentive Match Plan for Employees (SIMPLE). Section 408(p) addresses the SIMPLE.