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Seligman Growth Retirement Plans

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Seligman Growth Retirement Plans

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    1. Seligman Growth Retirement Plans The 2003 Small Business Owner’s Guide to Retirement Plans Good evening (morning/afternoon). I’d like to thank you for joining me tonight (today) to discuss one of the most important decisions you’ll make as an employer: offering a retirement plan to your employees. Most of you probably hear about 401(k) plans all the time, in the newspaper and on TV. While a 401(k) is an excellent retirement vehicle, there are other options out there that may be more appropriate for your business. We’ll be taking a closer look at all of these plans during our discussion. First, we’ll talk about why you should consider offering a retirement plan to your employees. Then, we’ll look at different plan types that are available to you — how they work, and the advantages and disadvantages of each. Please keep in mind that you don’t have to become a retirement plans expert to establish and maintain a plan for your business. This evening (morning/afternoon), we’ll focus on what these plans mean for you, as a business owner and as a plan participant. Also, I’ll introduce you to a retirement plans provider, Seligman Advisors, Inc., who understands your needs and concerns as a small business owner. Seligman offers a broad range of retirement plan products that allow you to provide an important employee benefit without high costs and time-consuming administrative hassles. If you have any questions along the way, please feel free to ask, or to meet with me after the presentation.Good evening (morning/afternoon). I’d like to thank you for joining me tonight (today) to discuss one of the most important decisions you’ll make as an employer: offering a retirement plan to your employees. Most of you probably hear about 401(k) plans all the time, in the newspaper and on TV. While a 401(k) is an excellent retirement vehicle, there are other options out there that may be more appropriate for your business. We’ll be taking a closer look at all of these plans during our discussion. First, we’ll talk about why you should consider offering a retirement plan to your employees. Then, we’ll look at different plan types that are available to you — how they work, and the advantages and disadvantages of each. Please keep in mind that you don’t have to become a retirement plans expert to establish and maintain a plan for your business. This evening (morning/afternoon), we’ll focus on what these plans mean for you, as a business owner and as a plan participant. Also, I’ll introduce you to a retirement plans provider, Seligman Advisors, Inc., who understands your needs and concerns as a small business owner. Seligman offers a broad range of retirement plan products that allow you to provide an important employee benefit without high costs and time-consuming administrative hassles. If you have any questions along the way, please feel free to ask, or to meet with me after the presentation.

    2. Economic Growth and Tax Relief Reconciliation Act Good news for retirement plans Increased contribution limits Changes to testing rules Incentives for plan establishment “Sunset clause” December 31, 2010, reverts to pre-2002 rules Before we begin, I need to point out that many of the retirement plan features we’ll be covering today are dependent on the Economic Growth and Tax Relief Reconciliation Act, or “EGTRRA.” This legislation, among other things, increased retirement plan contribution limits, changed plan testing rules, and created new incentives for businesses to establish a plan. This presentation today reflects these new provisions. Please note that the contribution limits referenced in this presentation are for the current year, 2003; under EGTRRA, many of these limits are scheduled to increase in subsequent years. However, be aware that EGTRRA contains a “sunset clause.” So, unless new legislation makes these changes permanent, the rules will revert on December 31, 2010, to what they were prior to this year. Before we begin, I need to point out that many of the retirement plan features we’ll be covering today are dependent on the Economic Growth and Tax Relief Reconciliation Act, or “EGTRRA.” This legislation, among other things, increased retirement plan contribution limits, changed plan testing rules, and created new incentives for businesses to establish a plan. This presentation today reflects these new provisions. Please note that the contribution limits referenced in this presentation are for the current year, 2003; under EGTRRA, many of these limits are scheduled to increase in subsequent years. However, be aware that EGTRRA contains a “sunset clause.” So, unless new legislation makes these changes permanent, the rules will revert on December 31, 2010, to what they were prior to this year.

    3. Why consider a retirement plan? Attract potential employees Reward and retain key employees Save for your retirement Help employees prepare for retirement Tax advantages Now, why should you consider a retirement plan for your business? As you probably know, offering a retirement plan as part of your overall package of benefits helps you attract quality employees. Many job candidates consider a retirement plan to be a standard required benefit. If you don’t offer one, your competitors will. For your existing employees, studies show that offering retirement benefits can reduce employee turnover by as much as 25%.* There are features you can include when structuring your plan that may help, which we’ll discuss later on. Remember, you’re not only the employer, you’re also an employee of your business. Therefore, you, too, can benefit from the company’s plan. Establishing a retirement plan for your business will allow you to put away significantly more toward your own retirement than personal IRAs alone. Of course, you may also want to help your employees prepare for retirement. With uncertainty about the future of Social Security, and increases in life expectancy — people are likely to be spending 20, even 30 years in retirement — saving for retirement is more important than ever. And a company-sponsored retirement plan can be one of the best ways for employees to reach their goals. Finally, retirement plans involve special tax advantages, for your business, for you, and for plan participants. Let’s look at these tax advantages more closely … *Industrial and Labor Relations Review, vol. 49, no. 4, p. 707Now, why should you consider a retirement plan for your business? As you probably know, offering a retirement plan as part of your overall package of benefits helps you attract quality employees. Many job candidates consider a retirement plan to be a standard required benefit. If you don’t offer one, your competitors will. For your existing employees, studies show that offering retirement benefits can reduce employee turnover by as much as 25%.* There are features you can include when structuring your plan that may help, which we’ll discuss later on. Remember, you’re not only the employer, you’re also an employee of your business. Therefore, you, too, can benefit from the company’s plan. Establishing a retirement plan for your business will allow you to put away significantly more toward your own retirement than personal IRAs alone. Of course, you may also want to help your employees prepare for retirement. With uncertainty about the future of Social Security, and increases in life expectancy — people are likely to be spending 20, even 30 years in retirement — saving for retirement is more important than ever. And a company-sponsored retirement plan can be one of the best ways for employees to reach their goals. Finally, retirement plans involve special tax advantages, for your business, for you, and for plan participants. Let’s look at these tax advantages more closely … *Industrial and Labor Relations Review, vol. 49, no. 4, p. 707

    4. Tax advantages for your business You may deduct: Employer contributions Plan expenses Self-employed individuals Reduce taxable income Tax credits First let’s take a look at tax advantages for your business. Employer contributions that are made by the company to plan participants are tax deductible to your business. This allows you to reward employees, including yourself, and receive a potentially significant tax deduction at the same time. Plan administration costs are also generally deductible from federal income taxes as well. These are the administrative costs associated with the day-to-day operation of the plan. The deductibility of plan administration costs from state taxes varies from state to state. Those of you who are self-employed pay some of the highest income taxes. You can reduce your annual taxable income by making a retirement contribution to the plan on behalf of yourself and any employees. And, if you have 100 employees or less, you are now eligible for certain tax credits. First let’s take a look at tax advantages for your business. Employer contributions that are made by the company to plan participants are tax deductible to your business. This allows you to reward employees, including yourself, and receive a potentially significant tax deduction at the same time. Plan administration costs are also generally deductible from federal income taxes as well. These are the administrative costs associated with the day-to-day operation of the plan. The deductibility of plan administration costs from state taxes varies from state to state. Those of you who are self-employed pay some of the highest income taxes. You can reduce your annual taxable income by making a retirement contribution to the plan on behalf of yourself and any employees. And, if you have 100 employees or less, you are now eligible for certain tax credits.

    5. Tax credit (beginning 2002) For small businesses 100 employees or less 50% tax credit up to $1,000 of plan’s set-up and annual administrative costs Maximum annual credit is $500 Can take tax credit for the first three years of a new plan If you are considering establishing a new plan, you should know that EGTRRA created tax credits for small businesses to cover the administration costs for the first three years of the plan’s existence. This credit is for 50% up to $1,000 (to a maximum of $500) of the plan’s set-up and/or annual administration costs. This means that a new 401(k) plan, such as the Seligman Growth 401(k) for under 50 lives that would normally cost $750 a year, is now effectively $375 for the first three years. This is tremendous incentive for those of you who qualify. We can discuss the details of this after the end of our presentation. If you are considering establishing a new plan, you should know that EGTRRA created tax credits for small businesses to cover the administration costs for the first three years of the plan’s existence. This credit is for 50% up to $1,000 (to a maximum of $500) of the plan’s set-up and/or annual administration costs. This means that a new 401(k) plan, such as the Seligman Growth 401(k) for under 50 lives that would normally cost $750 a year, is now effectively $375 for the first three years. This is tremendous incentive for those of you who qualify. We can discuss the details of this after the end of our presentation.

    6. Tax advantages for participants There are also tax advantages for participants — including you: First, in employee-funded plans, employee contributions are made on a pre-tax basis. That means that contributions are deducted from employee paychecks before taxes are calculated, reducing current taxable income. Let’s look at the tax-saving power of retirement plans with a hypothetical example. Suppose Joe earns $3,000 a month. If he does not participate in the 401(k) plan, he pays $810 in Federal income taxes, and takes home $2,190 a month. However, if Joe decides to contribute to the plan — let’s say, 5% of his salary — each month he puts $150 toward his retirement, pays only $770 in Federal income taxes, and takes home $2,080. So while his actual take-home pay is reduced by only $110, a full $150 is invested for his retirement. And over the course of a year, Joe will save $480 in Federal income taxes [(810-770) x 12].There are also tax advantages for participants — including you: First, in employee-funded plans, employee contributions are made on a pre-tax basis. That means that contributions are deducted from employee paychecks before taxes are calculated, reducing current taxable income. Let’s look at the tax-saving power of retirement plans with a hypothetical example. Suppose Joe earns $3,000 a month. If he does not participate in the 401(k) plan, he pays $810 in Federal income taxes, and takes home $2,190 a month. However, if Joe decides to contribute to the plan — let’s say, 5% of his salary — each month he puts $150 toward his retirement, pays only $770 in Federal income taxes, and takes home $2,080. So while his actual take-home pay is reduced by only $110, a full $150 is invested for his retirement. And over the course of a year, Joe will save $480 in Federal income taxes [(810-770) x 12].

    7. Investments Grow Tax-Deferred What’s another advantage to saving through a retirement plan? Tax-deferred compounding. That is, all contributions — both employee contributions and employer contributions — grow tax-deferred. Any earnings on your retirement savings will compound without being taxed, until you make a withdrawal, usually at retirement. The effect of tax-deferred growth is powerful over time, so your nest egg can grow larger inside a retirement plan than it would in a taxable account where your earnings are taxed each year. Let’s continue with the example of Joe. Assume he has earmarked $150 of income each month to invest for retirement. If he makes salary deferrals to the 401(k) plan, a full $150 dollars goes into his retirement account. But, if he saves through a regular account, he must first pay income taxes on the $150, so he’s left with only about $110 to put toward his retirement. Let’s assume that over time each account earns the same hypothetical return of 8%. But in the regular account, investment earnings are taxed each year, unlike the 401(k). After 30 years, the difference in the amount of money Joe accumulates is substantial. The value of his taxable account would be $108,793, while the 401(k) account would be over a quarter of a million dollars. Joe will owe income taxes on pre-tax contributions and earnings when he makes a withdrawal from the 401(k) — after taxes, his 401(k) would be worth $164,282… still $55,000 more than the regular account! That’s the power of tax-deferred growth. Keep in mind that as a trade-off for this special tax treatment, there are restrictions on taking distributions from your retirement plan. That is, distributions before age 591/2 may be subject to a 10% penalty in addition to ordinary income tax.What’s another advantage to saving through a retirement plan? Tax-deferred compounding. That is, all contributions — both employee contributions and employer contributions — grow tax-deferred. Any earnings on your retirement savings will compound without being taxed, until you make a withdrawal, usually at retirement. The effect of tax-deferred growth is powerful over time, so your nest egg can grow larger inside a retirement plan than it would in a taxable account where your earnings are taxed each year. Let’s continue with the example of Joe. Assume he has earmarked $150 of income each month to invest for retirement. If he makes salary deferrals to the 401(k) plan, a full $150 dollars goes into his retirement account. But, if he saves through a regular account, he must first pay income taxes on the $150, so he’s left with only about $110 to put toward his retirement. Let’s assume that over time each account earns the same hypothetical return of 8%. But in the regular account, investment earnings are taxed each year, unlike the 401(k). After 30 years, the difference in the amount of money Joe accumulates is substantial. The value of his taxable account would be $108,793, while the 401(k) account would be over a quarter of a million dollars. Joe will owe income taxes on pre-tax contributions and earnings when he makes a withdrawal from the 401(k) — after taxes, his 401(k) would be worth $164,282… still $55,000 more than the regular account! That’s the power of tax-deferred growth. Keep in mind that as a trade-off for this special tax treatment, there are restrictions on taking distributions from your retirement plan. That is, distributions before age 591/2 may be subject to a 10% penalty in addition to ordinary income tax.

    8. Retirement plan terminology Plan sponsor: business owner Fiduciary: responsible for the plan Salary deferrals: employee contributions Employer contributions: Discretionary contributions Matching contributions Percentages must be uniform for all employees Non-discrimination testing Before I talk about the specifics of the retirement plans available to your business, I’d like to go over some of the terms I’ll be using tonight (today), and some terms you’re likely to run across as you look into retirement plan options for your business. Plan Sponsor. This means you, the employer establishing the plan. As one of the people with control over the management of the plan, you are considered a fiduciary. Depending on the plan type, you may have more or less fiduciary responsibility to oversee the plan. Employee Salary Deferrals. These are amounts the employee elects to deduct directly from his or her paycheck before taxes as contributions to the plan. In our previous example, Joe chose to contribute $250 per month as his salary deferral. Employer Contributions. Depending on the plan type, the employer may choose to or be required to contribute to the plan. There are a number of ways to do this. First, there are discretionary employer contributions (also known as profit-sharing contributions). This means the employer chooses the percentage of each employee’s compensation that is contributed to the employee’s retirement account from year to year. A discretionary contribution can be high in one year, low in another, and in some years, not made at all. Employer contributions can also be matching contributions, where the employer “matches” a certain portion of employee salary deferrals. For instance, suppose Joe’s employer contributes 25˘ on the dollar for every dollar Joe saves. At Joe’s current $250 per month in contributions, the 25˘ matching formula would mean an employer match of $62.50 per month. An employer match is a powerful incentive for the employee to contribute to a plan. Please note, employer contribution percentages must be uniform: if you choose to make a 10% contribution, everyone who is eligible must receive 10%. Of course, the actual dollar amounts will vary based on each person’s compensation. As the business owner, and most likely the highest-paid employee, you will receive a larger contribution in terms of dollars.Before I talk about the specifics of the retirement plans available to your business, I’d like to go over some of the terms I’ll be using tonight (today), and some terms you’re likely to run across as you look into retirement plan options for your business. Plan Sponsor. This means you, the employer establishing the plan. As one of the people with control over the management of the plan, you are considered a fiduciary. Depending on the plan type, you may have more or less fiduciary responsibility to oversee the plan. Employee Salary Deferrals. These are amounts the employee elects to deduct directly from his or her paycheck before taxes as contributions to the plan. In our previous example, Joe chose to contribute $250 per month as his salary deferral. Employer Contributions. Depending on the plan type, the employer may choose to or be required to contribute to the plan. There are a number of ways to do this. First, there are discretionary employer contributions (also known as profit-sharing contributions). This means the employer chooses the percentage of each employee’s compensation that is contributed to the employee’s retirement account from year to year. A discretionary contribution can be high in one year, low in another, and in some years, not made at all. Employer contributions can also be matching contributions, where the employer “matches” a certain portion of employee salary deferrals. For instance, suppose Joe’s employer contributes 25˘ on the dollar for every dollar Joe saves. At Joe’s current $250 per month in contributions, the 25˘ matching formula would mean an employer match of $62.50 per month. An employer match is a powerful incentive for the employee to contribute to a plan. Please note, employer contribution percentages must be uniform: if you choose to make a 10% contribution, everyone who is eligible must receive 10%. Of course, the actual dollar amounts will vary based on each person’s compensation. As the business owner, and most likely the highest-paid employee, you will receive a larger contribution in terms of dollars.

    9. Retirement plan terminology, continued Plan document: outlines plan features Eligibility: who can participate Participants: those who join the plan or receive a contribution Vesting: how long until employees “own” employer contributions Loans: borrowing from your account Hardship withdrawals: permitted for emergencies The most important element in getting a plan up and running is the plan document. All plans must have a plan document which outlines the features of the plan. These features include: Eligibility. Simply put, it means which of your employees can participate. Different plan types allow you to set different restrictions on eligibility — such as employee age, earnings, or length of service before they are eligible to join the plan. Those who meet eligibility requirements and participate in the plan are called Participants. Vesting. If you make employer contributions to the plan, a vesting schedule dictates the amount of time it takes for the employee to “own” or be entitled to that money. If an employee leaves your company before she is fully vested, she will forfeit that money back to the plan. With some plan types, vesting is immediate. Other plans allow you to require up to seven years of service with the company before an employee is fully vested. All employee contributions are immediately vested, because the money is already owned by the employee. Loans. Some plan types allow participants to borrow a certain portion of their plan account for personal expenses, an option which may make the plan more attractive to employees. Employees who take a loan make payments back to their own accounts — with interest. As plan sponsor, you can decide if you want to make loans available in your plan document. Hardship Withdrawals. Some plan types also allow employees to access their money for a financial emergency, such as foreclosure, medical expenses, or for a child’s education. The most important element in getting a plan up and running is the plan document. All plans must have a plan document which outlines the features of the plan. These features include: Eligibility. Simply put, it means which of your employees can participate. Different plan types allow you to set different restrictions on eligibility — such as employee age, earnings, or length of service before they are eligible to join the plan. Those who meet eligibility requirements and participate in the plan are called Participants. Vesting. If you make employer contributions to the plan, a vesting schedule dictates the amount of time it takes for the employee to “own” or be entitled to that money. If an employee leaves your company before she is fully vested, she will forfeit that money back to the plan. With some plan types, vesting is immediate. Other plans allow you to require up to seven years of service with the company before an employee is fully vested. All employee contributions are immediately vested, because the money is already owned by the employee. Loans. Some plan types allow participants to borrow a certain portion of their plan account for personal expenses, an option which may make the plan more attractive to employees. Employees who take a loan make payments back to their own accounts — with interest. As plan sponsor, you can decide if you want to make loans available in your plan document. Hardship Withdrawals. Some plan types also allow employees to access their money for a financial emergency, such as foreclosure, medical expenses, or for a child’s education.

    10. Retirement plan terminology, continued Third Party Administrator (TPA) Recordkeeping: tracks contributions Testing: ensures the plan is fair Reporting: tax filing for the plan Investments Employee communications Just a few more terms and then we’ll move on: The more complex types of retirement plans require the services of a Third Party Administrator, known as a TPA. The TPA ensures accurate and timely administration for smooth plan operation — keeps the plan in compliance with laws and regulations, and monitors vesting of employer contributions, employee loans, and distributions. TPAs also handle: Recordkeeping. As the plan’s recordkeeper, the TPA makes sure contributions and other transactions are accounted for and will provide plan participants with statements of their account. Testing. In exchange for tax advantages, some plan types require complex tests on a regular basis. This is meant to ensure that the plan does not benefit one group of employees (like the higher-paid employees) more than another. In order to pass the required tests, it is best to encourage high levels of participation among employees. While these tests can be complicated, EGTRRA adopted some new rules to simplify the tests and make it easier for plans to pass them. Reporting. For some plan types, you must file IRS Form 5500 each year, which is basically a tax return for the plan. Most TPAs will prepare the 5500 for you. Other terms to consider: Investments. Investment options are a critical part of any plan. You’ll want a diversified range of investment options with a solid track record, so you and your employees can feel comfortable investing for your future through the plan. Employee communications. Having a retirement plan isn’t worthwhile unless employees understand and appreciate it. It’s important to communicate the benefits of your plan to your employees, and to educate them about investing for retirement, so they’ll be more likely to participate in the plan. Even if they are not participating, communicating the benefits of the plan serves as goodwill.Just a few more terms and then we’ll move on: The more complex types of retirement plans require the services of a Third Party Administrator, known as a TPA. The TPA ensures accurate and timely administration for smooth plan operation — keeps the plan in compliance with laws and regulations, and monitors vesting of employer contributions, employee loans, and distributions. TPAs also handle: Recordkeeping. As the plan’s recordkeeper, the TPA makes sure contributions and other transactions are accounted for and will provide plan participants with statements of their account. Testing. In exchange for tax advantages, some plan types require complex tests on a regular basis. This is meant to ensure that the plan does not benefit one group of employees (like the higher-paid employees) more than another. In order to pass the required tests, it is best to encourage high levels of participation among employees. While these tests can be complicated, EGTRRA adopted some new rules to simplify the tests and make it easier for plans to pass them. Reporting. For some plan types, you must file IRS Form 5500 each year, which is basically a tax return for the plan. Most TPAs will prepare the 5500 for you. Other terms to consider: Investments. Investment options are a critical part of any plan. You’ll want a diversified range of investment options with a solid track record, so you and your employees can feel comfortable investing for your future through the plan. Employee communications. Having a retirement plan isn’t worthwhile unless employees understand and appreciate it. It’s important to communicate the benefits of your plan to your employees, and to educate them about investing for retirement, so they’ll be more likely to participate in the plan. Even if they are not participating, communicating the benefits of the plan serves as goodwill.

    11. Why do you want to offer a retirement plan? As we go through the details of each plan type, I’d like you to think about why you’d like to start a retirement plan for your business. In doing this, you’ll find that certain plan types appear more attractive to you. [Question to audience:] What are some of the reasons you’re considering a retirement plan for your business? What do you hope to achieve by establishing a retirement plan? As we go through the details of each plan type, I’d like you to think about why you’d like to start a retirement plan for your business. In doing this, you’ll find that certain plan types appear more attractive to you. [Question to audience:] What are some of the reasons you’re considering a retirement plan for your business? What do you hope to achieve by establishing a retirement plan?

    12. What are your retirement plan goals? Are you starting a plan to… Maximize personal contributions? Attract new employees? Retain or reward current employees? Receive tax benefits for your business? Here I’ve listed four possible reasons for starting a plan, (some of/many of/similar to those) which you just told me. Perhaps you’re starting a plan to: Maximize your own savings for retirement. You’ll want a plan that has the highest possible potential contributions. Attract new employees to your business. You’ll want a plan that is well-known to your employees or provides them with the greatest benefit. Retain or reward employees. You’ll want a plan that will allow you to make employer contributions, the ability to change those contributions from year to year, or a vesting schedule that will give employees incentive to stay with the company. To receive the tax benefits we talked about earlier. While every plan provides some sort of tax benefit, certain plans allow you more tax deductions than others. Perhaps you have still other reasons for starting the plan. In any case, it’s a good idea for you to define your reasons at the outset to ensure the plan you ultimately select is the most appropriate way to meet your goals. Here I’ve listed four possible reasons for starting a plan, (some of/many of/similar to those) which you just told me. Perhaps you’re starting a plan to: Maximize your own savings for retirement. You’ll want a plan that has the highest possible potential contributions. Attract new employees to your business. You’ll want a plan that is well-known to your employees or provides them with the greatest benefit. Retain or reward employees. You’ll want a plan that will allow you to make employer contributions, the ability to change those contributions from year to year, or a vesting schedule that will give employees incentive to stay with the company. To receive the tax benefits we talked about earlier. While every plan provides some sort of tax benefit, certain plans allow you more tax deductions than others. Perhaps you have still other reasons for starting the plan. In any case, it’s a good idea for you to define your reasons at the outset to ensure the plan you ultimately select is the most appropriate way to meet your goals.

    13. What are your business characteristics? Keep in mind… Number of employees Part-timers vs. Full-timers Year-round vs. Seasonal Professional or Labor workforce Average employee tenure and turnover rates Nature of your business — cyclical or steady You should also keep the characteristics of your business in mind as we go through each plan description. Though one plan type may match certain personal goals, it may not work for your business overall. Each plan type has different provisions for who is eligible, the level of employer contributions, vesting schedules, and plan administration requirements. As we go through the provisions, you’ll see how each can be an advantage or disadvantage to your business. So, keep in mind: • The total number of employees at your company and how many are part-timers or full-timers. For example, under some plan types, a group of part-time workers who return to work for you the same time each year may be eligible to participate in the plan or to receive a contribution from you. • Are your employees professionals or laborers? Generally speaking, those employees earning more are more likely to contribute more to a plan. This may be an important factor with some plan types. • How long does the average employee stay with your company? Do you have mostly long-term employees or do they come and go within a couple of years? Answering these questions is important in selecting the eligibility requirements for the plan, and whether or not you need a vesting schedule to perhaps keep employees around longer. • What is the nature of your business — cyclical or steady? Some plan types require you to make a contribution each year, whereas others are very flexible. If you don’t have a stable profit pattern, you may not want to commit to annual contributions. On the other hand, some employers want to “force” themselves to make an annual retirement plan contribution, profits or not. You should also keep the characteristics of your business in mind as we go through each plan description. Though one plan type may match certain personal goals, it may not work for your business overall. Each plan type has different provisions for who is eligible, the level of employer contributions, vesting schedules, and plan administration requirements. As we go through the provisions, you’ll see how each can be an advantage or disadvantage to your business. So, keep in mind: • The total number of employees at your company and how many are part-timers or full-timers. For example, under some plan types, a group of part-time workers who return to work for you the same time each year may be eligible to participate in the plan or to receive a contribution from you. • Are your employees professionals or laborers? Generally speaking, those employees earning more are more likely to contribute more to a plan. This may be an important factor with some plan types. • How long does the average employee stay with your company? Do you have mostly long-term employees or do they come and go within a couple of years? Answering these questions is important in selecting the eligibility requirements for the plan, and whether or not you need a vesting schedule to perhaps keep employees around longer. • What is the nature of your business — cyclical or steady? Some plan types require you to make a contribution each year, whereas others are very flexible. If you don’t have a stable profit pattern, you may not want to commit to annual contributions. On the other hand, some employers want to “force” themselves to make an annual retirement plan contribution, profits or not.

    14. Business characteristics, continued Incorporated Unincorporated Consult your tax advisor Finally, as we continue our retirement plans discussion, keep in mind that special rules may apply to your retirement plan if you are an unincorporated business, sole proprietor, or partnership. If you are unincorporated, you should consult your tax advisor for information on your specific situation. Are there any questions so far? Now, let’s take a look at your options...Finally, as we continue our retirement plans discussion, keep in mind that special rules may apply to your retirement plan if you are an unincorporated business, sole proprietor, or partnership. If you are unincorporated, you should consult your tax advisor for information on your specific situation. Are there any questions so far? Now, let’s take a look at your options...

    15. Retirement plan options Group IRA plans Simplified Employee Pension (SEP) Savings Incentive Match Plan for Employees (SIMPLE-IRA) Qualified plans 401(k) plan Profit Sharing plan Money Purchase plan Defined Benefit (DB) plan Here are your basic retirement plan options: The first group shown here are known as Group IRA plans, meaning all contributions are deposited into IRA accounts which are controlled by each employee. Here we have a Simplified Employee Pension, or SEP, plan, and a Savings Incentive Match Plan for Employees, or SIMPLE, plan. The second group of plans, known as Qualified Plans, have more complex rules and protections, as well as unique benefits, which we’ll discuss shortly. 401(k) plans, Profit Sharing plans, and Money Purchase plans are known as defined contribution plans, meaning contributions are defined or limited, but benefits at retirement are not guaranteed. The other type of Qualified Plan is the Defined Benefit, or DB plan. DBs are traditional pension plans, which define a fixed payment, or benefit, at retirement to employees. Today’s retirees may be currently receiving a monthly pension from their former employer’s DB plan. Few companies start DB plans today because they require complex administration and are much more expensive than other types of plans. So, we won't be covering DB plans in this discussion.Here are your basic retirement plan options: The first group shown here are known as Group IRA plans, meaning all contributions are deposited into IRA accounts which are controlled by each employee. Here we have a Simplified Employee Pension, or SEP, plan, and a Savings Incentive Match Plan for Employees, or SIMPLE, plan. The second group of plans, known as Qualified Plans, have more complex rules and protections, as well as unique benefits, which we’ll discuss shortly. 401(k) plans, Profit Sharing plans, and Money Purchase plans are known as defined contribution plans, meaning contributions are defined or limited, but benefits at retirement are not guaranteed. The other type of Qualified Plan is the Defined Benefit, or DB plan. DBs are traditional pension plans, which define a fixed payment, or benefit, at retirement to employees. Today’s retirees may be currently receiving a monthly pension from their former employer’s DB plan. Few companies start DB plans today because they require complex administration and are much more expensive than other types of plans. So, we won't be covering DB plans in this discussion.

    16. Group IRA plans Simplified Contributions deposited into employee IRAs Low fiduciary responsibility Any employer contributions are 100% vested No TPA is required Cannot be combined with other plans We’ll start with the Group IRA plans — which includes the SEP and the SIMPLE-IRA. All Group IRAs are simplified, meaning the rules in these plans are relatively simple to follow. All contributions — whether employee salary deferrals or employer contributions — are deposited into employee IRA accounts. Employees have full control of how their money is invested within their IRAs, and, if they leave your company, they simply continue to control those accounts on their own. The fact that employees control their IRAs reduces your fiduciary responsibility. Since you are not responsible for selecting the investment menu, you are not responsible for investment outcomes of participants. In keeping with the simplified nature of the plan, any employer contributions made to the plan are immediately 100% vested. So you will not need a TPA to monitor vesting for your plan. You will also not need a TPA for testing or reporting. In fact, you’ll never need a TPA for anything in a Group IRA plan — this can mean major cost savings for you. Finally, Group IRAs cannot be combined with any other type of plan. In contrast, with Qualified Plans, you may combine two defined contribution plans, or a defined contribution plan with a defined benefit, in order to maximize contributions. Let’s take a look at our first type of Group IRA plan, the Simplified Employee Pension or SEP plan.We’ll start with the Group IRA plans — which includes the SEP and the SIMPLE-IRA. All Group IRAs are simplified, meaning the rules in these plans are relatively simple to follow. All contributions — whether employee salary deferrals or employer contributions — are deposited into employee IRA accounts. Employees have full control of how their money is invested within their IRAs, and, if they leave your company, they simply continue to control those accounts on their own. The fact that employees control their IRAs reduces your fiduciary responsibility. Since you are not responsible for selecting the investment menu, you are not responsible for investment outcomes of participants. In keeping with the simplified nature of the plan, any employer contributions made to the plan are immediately 100% vested. So you will not need a TPA to monitor vesting for your plan. You will also not need a TPA for testing or reporting. In fact, you’ll never need a TPA for anything in a Group IRA plan — this can mean major cost savings for you. Finally, Group IRAs cannot be combined with any other type of plan. In contrast, with Qualified Plans, you may combine two defined contribution plans, or a defined contribution plan with a defined benefit, in order to maximize contributions. Let’s take a look at our first type of Group IRA plan, the Simplified Employee Pension or SEP plan.

    17. SEP plan (Simplified Employee Pension) Discretionary employer contributions 0% to 25% of compensation Capped at $40,000 per employee Eligibility Up to three years of service Age 21 Minimum $450 in earnings Employee-directed IRA accounts In a nutshell, a SEP plan consists solely of discretionary employer contributions. The employer decides each year what percentage of each eligible employee’s compensation (including his or her own) will be contributed. The percentage of compensation can range from 0% (meaning no contribution) to 25%, with the maximum dollar amount contributed to any one employee capped at $40,000. Contribution percentages must be uniform. If you choose to make a 10% contribution, everyone who is eligible must receive an amount equal to 10% of their compensation. However, you aren’t required to make a contribution for everyone you hire. A SEP need only include employees who: Have worked for your company for at least three of the last five years; Are at least 21 years old; and Have earned a minimum of $450. So you wouldn’t have to make contributions on behalf of short-term or teenage employees. However, you would, for example, have to make a contribution on behalf of a 22-year-old employee who worked for your company for three summers in a row and earned over $450 each summer. As I mentioned earlier, the SEP is designed to be simple: There are no loans or hardship withdrawals permitted. If employees leave your company, they simply maintain their IRAs on their own. Since contributions are uniform, no testing or reporting is required. Therefore, you will not need the services of a third party administrator (TPA) for a SEP plan.In a nutshell, a SEP plan consists solely of discretionary employer contributions. The employer decides each year what percentage of each eligible employee’s compensation (including his or her own) will be contributed. The percentage of compensation can range from 0% (meaning no contribution) to 25%, with the maximum dollar amount contributed to any one employee capped at $40,000. Contribution percentages must be uniform. If you choose to make a 10% contribution, everyone who is eligible must receive an amount equal to 10% of their compensation. However, you aren’t required to make a contribution for everyone you hire. A SEP need only include employees who: Have worked for your company for at least three of the last five years; Are at least 21 years old; and Have earned a minimum of $450. So you wouldn’t have to make contributions on behalf of short-term or teenage employees. However, you would, for example, have to make a contribution on behalf of a 22-year-old employee who worked for your company for three summers in a row and earned over $450 each summer. As I mentioned earlier, the SEP is designed to be simple: There are no loans or hardship withdrawals permitted. If employees leave your company, they simply maintain their IRAs on their own. Since contributions are uniform, no testing or reporting is required. Therefore, you will not need the services of a third party administrator (TPA) for a SEP plan.

    18. Contributing to a SEP — example Sam Ford Executive Search, Inc. Sam Ford (owner) and two employees 7% contribution this year Salary Contribution % of Total Sam Ford $ 150,000 $ 10,500 71% Jane $ 35,000 $ 2,450 17% Joe $ 25,000 $ 1,750 12% Owner receives 71% of total $14,700 contribution Here’s a hypothetical example. Let’s take Sam Ford Executive Search, Inc., an employment firm that consists of the business owner — Sam Ford — and two recruiters — Jane and Joe. The company currently has a SEP plan. Sam, Jane, and Joe are each eligible to receive a SEP contribution. Considering how well the business did this year, Sam Ford decides to make a 7% SEP contribution to each employee. Sam earns $150,000, while his senior recruiter, Jane, earns $35,000 and his junior recruiter, Joe, earns $25,000. Based on a 7% SEP contribution, the owner will receive $10,500 and his two recruiters will receive $2,450 and $1,750 respectively. The owner’s total SEP contribution to all employees — including himself —is $14,700. This amount is tax-deductible to Sam Ford Executive Search, Inc. Note that because he earns more than his recruiters, Sam himself receives 71% of the total $14,700 contribution. These contributions are 100% vested, but Sam is comfortable with that and sees it as a way to reward Jane and Joe for doing good work. Are there any questions on this example?Here’s a hypothetical example. Let’s take Sam Ford Executive Search, Inc., an employment firm that consists of the business owner — Sam Ford — and two recruiters — Jane and Joe. The company currently has a SEP plan. Sam, Jane, and Joe are each eligible to receive a SEP contribution. Considering how well the business did this year, Sam Ford decides to make a 7% SEP contribution to each employee. Sam earns $150,000, while his senior recruiter, Jane, earns $35,000 and his junior recruiter, Joe, earns $25,000. Based on a 7% SEP contribution, the owner will receive $10,500 and his two recruiters will receive $2,450 and $1,750 respectively. The owner’s total SEP contribution to all employees — including himself —is $14,700. This amount is tax-deductible to Sam Ford Executive Search, Inc. Note that because he earns more than his recruiters, Sam himself receives 71% of the total $14,700 contribution. These contributions are 100% vested, but Sam is comfortable with that and sees it as a way to reward Jane and Joe for doing good work. Are there any questions on this example?

    19. SEP benefits Business owner can save up to $40,000 per year Contributions are flexible Establish and fund up to tax filing due date Three-year service requirement for eligibility Easy to administer and maintain Contributions are attractive to employees Let’s review the benefits of a SEP plan. A SEP allows you, the business owner, to put away a much larger amount toward your retirement than most other kinds of plans — up to $40,000 per year. Discretionary contributions are another advantage of the SEP. You are not obligated to make a contribution each year. Or you can choose to make higher contributions in better years, lower contributions in other years. If you decide to make a contribution, you have until your tax-filing due date, plus extensions, to do so. SEPs are the only plan that can be established and funded after your tax year-end, up to your tax filing due date. Unlike other plans — as you’ll see in a moment — the SEP has the longest service requirement for eligibility: up to three years. If you have one- or two-year turnover rates, the short-term employees won’t be eligible for the plan and a contribution. Ease of administration is another major benefit of the SEP, so it won’t take time away from you running your business. As plan sponsor, there is little for you to worry about other than determining each year the level of contribution you’d like to make and depositing the contributions. Finally, a potential SEP contribution each year is very attractive to current and prospective employees. Who wouldn’t like the idea of receiving as much as 15% of their compensation toward retirement? Of course, the SEP does have it’s drawbacks. Here’s what you should consider before you decide it’s the right plan for your business…Let’s review the benefits of a SEP plan. A SEP allows you, the business owner, to put away a much larger amount toward your retirement than most other kinds of plans — up to $40,000 per year. Discretionary contributions are another advantage of the SEP. You are not obligated to make a contribution each year. Or you can choose to make higher contributions in better years, lower contributions in other years. If you decide to make a contribution, you have until your tax-filing due date, plus extensions, to do so. SEPs are the only plan that can be established and funded after your tax year-end, up to your tax filing due date. Unlike other plans — as you’ll see in a moment — the SEP has the longest service requirement for eligibility: up to three years. If you have one- or two-year turnover rates, the short-term employees won’t be eligible for the plan and a contribution. Ease of administration is another major benefit of the SEP, so it won’t take time away from you running your business. As plan sponsor, there is little for you to worry about other than determining each year the level of contribution you’d like to make and depositing the contributions. Finally, a potential SEP contribution each year is very attractive to current and prospective employees. Who wouldn’t like the idea of receiving as much as 15% of their compensation toward retirement? Of course, the SEP does have it’s drawbacks. Here’s what you should consider before you decide it’s the right plan for your business…

    20. SEP disadvantages Completely employer-funded All contributions 100% vested Part-time and seasonal employees eligible Little flexibility No loans or hardship withdrawals One disadvantage of the SEP for you is that it is solely funded by employer contributions. Employees do not have the opportunity to fund a portion of their retirement with money from their own paychecks. And, all contributions you make are immediately owned by the employee, so they can take your total contribution with them if they leave your company. Therefore, you must feel comfortable with the fact that employees own your contributions as soon as you make them. If you have a large number of long-term part-time or seasonal employees, the eligibility requirements of a SEP can be less than ideal. In determining eligibility for a SEP, an employee’s years of service are defined by compensation — which only has to reach $450. Other types of retirement plans allow you to define a year of service in terms of hours, not dollars of compensation. And finally, while the lack of plan features such as loans, hardship withdrawals, and a vesting schedule make a SEP easy to administer, it also limits the plan’s flexibility. So, you should consider how important those flexible features are to you and your employees. What kinds of companies would be well-served by a SEP plan?One disadvantage of the SEP for you is that it is solely funded by employer contributions. Employees do not have the opportunity to fund a portion of their retirement with money from their own paychecks. And, all contributions you make are immediately owned by the employee, so they can take your total contribution with them if they leave your company. Therefore, you must feel comfortable with the fact that employees own your contributions as soon as you make them. If you have a large number of long-term part-time or seasonal employees, the eligibility requirements of a SEP can be less than ideal. In determining eligibility for a SEP, an employee’s years of service are defined by compensation — which only has to reach $450. Other types of retirement plans allow you to define a year of service in terms of hours, not dollars of compensation. And finally, while the lack of plan features such as loans, hardship withdrawals, and a vesting schedule make a SEP easy to administer, it also limits the plan’s flexibility. So, you should consider how important those flexible features are to you and your employees. What kinds of companies would be well-served by a SEP plan?

    21. SEP Plans Ideal for the self-employed or for very small firms with a few key employees A SEP is ideal for the self-employed, or for very small firms with a few key employees. If you are self-employed, you can receive the maximum contribution while your business receives a tax deduction. Smaller companies with a few key employees are also ideal, because the greatest reward, in contributions, goes to those key employees. Since the plan is solely funded by the employer, a SEP may be too costly for a larger company. These companies may be better served by another plan, such as the SIMPLE-IRA.A SEP is ideal for the self-employed, or for very small firms with a few key employees. If you are self-employed, you can receive the maximum contribution while your business receives a tax deduction. Smaller companies with a few key employees are also ideal, because the greatest reward, in contributions, goes to those key employees. Since the plan is solely funded by the employer, a SEP may be too costly for a larger company. These companies may be better served by another plan, such as the SIMPLE-IRA.

    22. SIMPLE-IRA plan Companies with fewer than 100 employees Employee pre-tax salary deferrals up to $8,000 $1,000 catch-up contribution if age 50+ Employer contributions are mandatory Dollar-for-dollar match of 3%, capped at $8,000 (may be reduced to 1% in any 2 out of 5 years) Non-elective contribution of 2% of compensation Eligibility: up to two years of service, $5,000 in earnings The Savings Incentive Match Plan for Employees, or SIMPLE-IRA, was introduced in 1997 specifically for small businesses with under 100 employees. The SIMPLE was instantly popular. Why? Because the plan allows for both employee and employer contributions, without a lot of administration and with no testing requirements. Employees may contribute up to $8,000 through pre-tax salary deferrals. If an employee earns only $8,000, that entire amount can be contributed to the plan. Individuals age 50 and over can also make an additional “catch-up contribution” of up to $1,000. The employer, in turn, is required to make a modest contribution each and every year. There are two options for employer contributions: The first option is to match the participant’s contribution dollar-for-dollar up to 3% of the employee’s compensation. So, even if an employee is contributing 10% of his salary, the employer need only match 3%. This match formula may be reduced to as low as 1% of compensation for any two out of five years. The maximum matching contribution is $8,000. The alternative to the match is a 2% non-elective contribution. That is, a 2% contribution to any employee who is eligible, whether or not they make their own contributions to the plan. There are no compensation caps when using the match, but when using the nonelective contribution, each employee’s compensation is capped at $200,000. The match option has proved to be the more popular, since it rewards only those employees who participate. Like the SEP, all employer contributions are immediately 100% vested. You may restrict eligibility for the SIMPLE to those employees who have worked for your company for at least two years and receive at least $5,000 in compensation each year. You can choose to be less stringent, requiring your employees to work for you only one year. Under a SIMPLE, you’re likely to have part-timers who earn at least $5,000, and are therefore eligible to participate. These employees may or may not choose to make salary deferrals to the plan.The Savings Incentive Match Plan for Employees, or SIMPLE-IRA, was introduced in 1997 specifically for small businesses with under 100 employees. The SIMPLE was instantly popular. Why? Because the plan allows for both employee and employer contributions, without a lot of administration and with no testing requirements. Employees may contribute up to $8,000 through pre-tax salary deferrals. If an employee earns only $8,000, that entire amount can be contributed to the plan. Individuals age 50 and over can also make an additional “catch-up contribution” of up to $1,000. The employer, in turn, is required to make a modest contribution each and every year. There are two options for employer contributions: The first option is to match the participant’s contribution dollar-for-dollar up to 3% of the employee’s compensation. So, even if an employee is contributing 10% of his salary, the employer need only match 3%. This match formula may be reduced to as low as 1% of compensation for any two out of five years. The maximum matching contribution is $8,000. The alternative to the match is a 2% non-elective contribution. That is, a 2% contribution to any employee who is eligible, whether or not they make their own contributions to the plan. There are no compensation caps when using the match, but when using the nonelective contribution, each employee’s compensation is capped at $200,000. The match option has proved to be the more popular, since it rewards only those employees who participate. Like the SEP, all employer contributions are immediately 100% vested. You may restrict eligibility for the SIMPLE to those employees who have worked for your company for at least two years and receive at least $5,000 in compensation each year. You can choose to be less stringent, requiring your employees to work for you only one year. Under a SIMPLE, you’re likely to have part-timers who earn at least $5,000, and are therefore eligible to participate. These employees may or may not choose to make salary deferrals to the plan.

    23. Contributing to a SIMPLE — example Tyler Landscaping Co. Kim Tyler (owner) and four eligible employees 3% employer match this year Salary EE Contribution 3% ER Match Kim T. $ 250,000 $ 8,000 $ 7,500 Bob $ 100,000 $ 8,000 $ 3,000 Phil $ 40,000 $ 0 $ 0 Sara $ 35,000 $ 3,500 $ 1,050 Todd $ 25,000 $ 750 $ 750 Owner receives 61% of total $12,300 match Let’s look at an example of how matching works. Here’s a hypothetical company called Tyler Landscaping Co., which is owned by Kim Tyler. Kim has 15 employees, but only four are currently eligible to participate in the company’s SIMPLE plan. Kim decided to offer a SIMPLE-IRA because she wanted her employees to bear the responsibility for funding most of their retirement savings. This year, Kim has decided to offer a 3% matching contribution to employees who participate in the plan. Kim Tyler earns $250,000 per year and contributes the maximum $8,000 from her paycheck. She will also receive the 3% match of $7,500, for a total of $15,500 this year toward her retirement. Her foreman, Bob, earns $100,000 per year and he is also contributing the maximum $8,000 from his pay. However, he will receive only $3,000 in matching contributions — that is, 3% of his compensation. Her most senior landscaper, Phil, doesn’t want to contribute to the plan, despite Kim’s urging him to do so. With the match formula, this employee will receive no contribution from Kim. Of her other two eligible employees, Sara is contributing 10% of her salary, or $3,500. She receives a 3% matching contribution of $1,050. Todd is contributing just 3%, or $750, and will be matched dollar-for-dollar for an additional $750. In all, Kim Tyler will spend a total of $12,300 in matching contributions, all of which are considered a business expense. However, more than half of that total outlay ($7,500) goes into her own SIMPLE-IRA account.Let’s look at an example of how matching works. Here’s a hypothetical company called Tyler Landscaping Co., which is owned by Kim Tyler. Kim has 15 employees, but only four are currently eligible to participate in the company’s SIMPLE plan. Kim decided to offer a SIMPLE-IRA because she wanted her employees to bear the responsibility for funding most of their retirement savings. This year, Kim has decided to offer a 3% matching contribution to employees who participate in the plan. Kim Tyler earns $250,000 per year and contributes the maximum $8,000 from her paycheck. She will also receive the 3% match of $7,500, for a total of $15,500 this year toward her retirement. Her foreman, Bob, earns $100,000 per year and he is also contributing the maximum $8,000 from his pay. However, he will receive only $3,000 in matching contributions — that is, 3% of his compensation. Her most senior landscaper, Phil, doesn’t want to contribute to the plan, despite Kim’s urging him to do so. With the match formula, this employee will receive no contribution from Kim. Of her other two eligible employees, Sara is contributing 10% of her salary, or $3,500. She receives a 3% matching contribution of $1,050. Todd is contributing just 3%, or $750, and will be matched dollar-for-dollar for an additional $750. In all, Kim Tyler will spend a total of $12,300 in matching contributions, all of which are considered a business expense. However, more than half of that total outlay ($7,500) goes into her own SIMPLE-IRA account.

    24. SIMPLE-IRA benefits Business owner can save up to $16,000 per year Shifts most funding responsibility to employees Employer contributions are flexible Two-year service requirement for eligibility Easy to administer and maintain — no plan testing Desirable features at low cost So what are the main benefits of adopting a SIMPLE-IRA? The business owner, as an employee, can put away up to $16,000 per year toward retirement — $8,000 in pre-tax salary deferrals and $8,000 in employer contributions — plus catch-up contributions for those over age 50. The total amount you can save in a SIMPLE is not as high as in a SEP. But, if you have employees, the SIMPLE costs you less in terms of employer contributions, and less than a 401(k) plan in terms of administration. The SIMPLE shifts the bulk of the responsibility for retirement savings onto the employees. And, the required employer contribution is relatively small and somewhat flexible. The service requirement for eligibility for the SIMPLE, although less than a SEP, is still relatively long — up to two years. The key benefit to the SIMPLE-IRA, as with the SEP, is administrative ease. There is no plan testing required. Employers simply deposit salary deferrals and matching contributions into employee SIMPLE-IRAs. And, you have until your tax filing due date, plus extensions, to make the employer contribution. Finally, the SIMPLE allows you to offer desirable plan features — like the ability to combine employee salary deferrals with employer contributions — at a very low cost.So what are the main benefits of adopting a SIMPLE-IRA? The business owner, as an employee, can put away up to $16,000 per year toward retirement — $8,000 in pre-tax salary deferrals and $8,000 in employer contributions — plus catch-up contributions for those over age 50. The total amount you can save in a SIMPLE is not as high as in a SEP. But, if you have employees, the SIMPLE costs you less in terms of employer contributions, and less than a 401(k) plan in terms of administration. The SIMPLE shifts the bulk of the responsibility for retirement savings onto the employees. And, the required employer contribution is relatively small and somewhat flexible. The service requirement for eligibility for the SIMPLE, although less than a SEP, is still relatively long — up to two years. The key benefit to the SIMPLE-IRA, as with the SEP, is administrative ease. There is no plan testing required. Employers simply deposit salary deferrals and matching contributions into employee SIMPLE-IRAs. And, you have until your tax filing due date, plus extensions, to make the employer contribution. Finally, the SIMPLE allows you to offer desirable plan features — like the ability to combine employee salary deferrals with employer contributions — at a very low cost.

    25. SIMPLE-IRA disadvantages Employer contributions are mandatory All contributions 100% vested Part-time and seasonal employees eligible 60 days’ advance notice of plan establishment Little flexibility Employer contributions are limited No loans or hardship withdrawals Now let’s consider some of the disadvantages of the SIMPLE-IRA. Though the mandatory employer contributions are modest, some business owners may find this obligation a problem. Furthermore, the fact that all contributions are immediately vested may not be ideal for your business if you have high turnover rates. Keep in mind, however, that mandatory employer contributions and immediate vesting relieve you from plan testing and the need for a TPA. The SIMPLE plan eligibility requirements allow anyone with service in any two years to be part of the plan. If you have a number of seasonal employees, they may be eligible to contribute to the plan and receive a contribution from you. Keep in mind that you must also provide 60 days’ advance notice of plan establishment before salary deferrals can begin. And finally, in exchange for simplicity, the SIMPLE-IRA has little flexibility. For example, if you wanted to give your employees a 5% match instead of a 3% match, you could not do it within a SIMPLE. You also cannot offer loans or hardship withdrawals, which may be very attractive to your employees. When deciding if the SIMPLE-IRA is right for you, weigh the benefits of the plan’s simplicity against your desire for this kind of flexibility. What businesses are ideal candidates for a SIMPLE-IRA?Now let’s consider some of the disadvantages of the SIMPLE-IRA. Though the mandatory employer contributions are modest, some business owners may find this obligation a problem. Furthermore, the fact that all contributions are immediately vested may not be ideal for your business if you have high turnover rates. Keep in mind, however, that mandatory employer contributions and immediate vesting relieve you from plan testing and the need for a TPA. The SIMPLE plan eligibility requirements allow anyone with service in any two years to be part of the plan. If you have a number of seasonal employees, they may be eligible to contribute to the plan and receive a contribution from you. Keep in mind that you must also provide 60 days’ advance notice of plan establishment before salary deferrals can begin. And finally, in exchange for simplicity, the SIMPLE-IRA has little flexibility. For example, if you wanted to give your employees a 5% match instead of a 3% match, you could not do it within a SIMPLE. You also cannot offer loans or hardship withdrawals, which may be very attractive to your employees. When deciding if the SIMPLE-IRA is right for you, weigh the benefits of the plan’s simplicity against your desire for this kind of flexibility. What businesses are ideal candidates for a SIMPLE-IRA?

    26. SIMPLE-IRA Ideal for small companies that are willing to make a small contribution in exchange for plan simplicity While you can have as many as 100 employees, the SIMPLE-IRA is ideal for smaller companies — usually 3 to 25, maybe 50, employees — that are willing to make a small contribution to employees in exchange for plan simplicity. And, because contributions are required each and every year the plan exists, the employer must be certain that he or she will be able to meet that obligation. The SIMPLE is also great for companies that want employees to fund the bulk of their retirement savings, but don’t want to take on administrative burdens. If you are self-employed or have only one or two employees, you may be better off with a SEP plan, which would allow you to receive the maximum personal contribution of $40,000, as opposed to only $16,000 with the SIMPLE. That’s it for the Group IRA plans. Any questions before we move on?While you can have as many as 100 employees, the SIMPLE-IRA is ideal for smaller companies — usually 3 to 25, maybe 50, employees — that are willing to make a small contribution to employees in exchange for plan simplicity. And, because contributions are required each and every year the plan exists, the employer must be certain that he or she will be able to meet that obligation. The SIMPLE is also great for companies that want employees to fund the bulk of their retirement savings, but don’t want to take on administrative burdens. If you are self-employed or have only one or two employees, you may be better off with a SEP plan, which would allow you to receive the maximum personal contribution of $40,000, as opposed to only $16,000 with the SIMPLE. That’s it for the Group IRA plans. Any questions before we move on?

    27. Qualified plans More complex TPA required for testing and reporting Vesting schedule for employer contributions Employer selects investment menu More fiduciary responsibility More flexible features Loans and hardship withdrawals Can be combined with other plans Now, let’s look at the qualified plans. Qualified plans are more complex than Group IRA plans. They require discrimination testing and annual tax reporting, so you will need a third party administrator (TPA). The TPA can also track the vesting of employer contributions. Under the qualified plans, you may have a vesting schedule, requiring as many as seven years before employees “own” the contributions you make on their behalf. For a qualified plan, the employer, with the help of a financial advisor, selects the investment options available in the plan. If the plan allows employees to direct their own investments, the employer still limits the number of options from which an employee can choose. Because of this, employers have the fiduciary responsibility to act prudently when selecting investment options for the plan. Although they require more complex plan administration, the qualified plans offer more flexibility, such as the ability to establish a vesting schedule. Other qualified plan features include: Loans, hardship, and in-service withdrawals — these are very attractive to employees because they allow access to their money before retirement. The ability to combine plans, as we’ll discuss in a moment. Now, let’s look at the qualified plans. Qualified plans are more complex than Group IRA plans. They require discrimination testing and annual tax reporting, so you will need a third party administrator (TPA). The TPA can also track the vesting of employer contributions. Under the qualified plans, you may have a vesting schedule, requiring as many as seven years before employees “own” the contributions you make on their behalf. For a qualified plan, the employer, with the help of a financial advisor, selects the investment options available in the plan. If the plan allows employees to direct their own investments, the employer still limits the number of options from which an employee can choose. Because of this, employers have the fiduciary responsibility to act prudently when selecting investment options for the plan. Although they require more complex plan administration, the qualified plans offer more flexibility, such as the ability to establish a vesting schedule. Other qualified plan features include: Loans, hardship, and in-service withdrawals — these are very attractive to employees because they allow access to their money before retirement. The ability to combine plans, as we’ll discuss in a moment.

    28. Profit Sharing Plan Discretionary employer contributions 0% to 100% of compensation Capped at $40,000 per employee Vesting schedule can be applied Eligibility 1 year of service (1,000 hours) Age 21 Can be added on to a 401(k) plan Loans Now available to business owners The first qualified plan we’ll discuss is the Profit Sharing plan, with which you may already be familiar. A Profit Sharing plan allows discretionary annual employer contributions. You decide each year how much you want to contribute, usually depending on the company’s profits for the year. Each participant — including yourself — may receive a maximum contribution of 100% of compensation or $40,000, whichever is less. With a Profit Sharing Plan, unlike a SEP, you may choose a vesting schedule for contributions, which is especially important if you have a lot of short-term employees. With regard to eligibility, a Profit Sharing Plan may require an employee to have one year of service — defined as 1,000 hours — and be at least age 21 before they’re eligible to receive a contribution. These eligibility requirements will typically eliminate part-time and seasonal employees. Also, a Profit Sharing plan is often part of a 401(k) plan. It gives employers the option of making an additional contribution to employees when profits are up, but does not obligate them to do so each year. The ability to offer loans is a significant feature of Profit Sharing plans. And now even a business owner can take a loan, whereas prior to EGTRRA, he or she was prohibited from doing so. The first qualified plan we’ll discuss is the Profit Sharing plan, with which you may already be familiar. A Profit Sharing plan allows discretionary annual employer contributions. You decide each year how much you want to contribute, usually depending on the company’s profits for the year. Each participant — including yourself — may receive a maximum contribution of 100% of compensation or $40,000, whichever is less. With a Profit Sharing Plan, unlike a SEP, you may choose a vesting schedule for contributions, which is especially important if you have a lot of short-term employees. With regard to eligibility, a Profit Sharing Plan may require an employee to have one year of service — defined as 1,000 hours — and be at least age 21 before they’re eligible to receive a contribution. These eligibility requirements will typically eliminate part-time and seasonal employees. Also, a Profit Sharing plan is often part of a 401(k) plan. It gives employers the option of making an additional contribution to employees when profits are up, but does not obligate them to do so each year. The ability to offer loans is a significant feature of Profit Sharing plans. And now even a business owner can take a loan, whereas prior to EGTRRA, he or she was prohibited from doing so.

    29. Contributing to a Profit Sharing Plan — example Dental Associates, Inc. Dr. Jones, dental hygienist, receptionist 25% Profit Sharing Salary 25% Contribution Dr. J $ 175,000 $ 42,500 $ 40,000* Tina $ 50,000 $ 12,500 $ 12,500 Tony $ 22,000 $ 5,500 $ 5,500 Dr. Jones receives 69% of $58,000 contribution This example shows how you can make a maximum contribution with a Profit Sharing plan. Dental Associates, Inc. is made up of one dentist, Dr. Jones, and two eligible employees — Tina, the dental hygienist and Tony, a receptionist. Dental Associates has a Profit Sharing plan, and this year Dr. Jones has decided that he will make a generous 25% Profit Sharing contribution. Dr. Jones, who earns $175,000, clearly benefits the most from this plan. Although 25% of his compensation is $42,500, he can only receive up to $40,000 — the maximum allowed contribution. His employees also receive significant contributions, of $12,500 and $5,500, respectively. Dr. Jones feels the plan has helped encourage Tina and Tony to stay with the company for several years. If they do decide to leave, however, they may not be able to take all of the money with them, depending on the plan’s vesting schedule. Although Dr. Jones’ total contribution liability is $58,000, 69% of that contribution goes into his own account. Not bad!This example shows how you can make a maximum contribution with a Profit Sharing plan. Dental Associates, Inc. is made up of one dentist, Dr. Jones, and two eligible employees — Tina, the dental hygienist and Tony, a receptionist. Dental Associates has a Profit Sharing plan, and this year Dr. Jones has decided that he will make a generous 25% Profit Sharing contribution. Dr. Jones, who earns $175,000, clearly benefits the most from this plan. Although 25% of his compensation is $42,500, he can only receive up to $40,000 — the maximum allowed contribution. His employees also receive significant contributions, of $12,500 and $5,500, respectively. Dr. Jones feels the plan has helped encourage Tina and Tony to stay with the company for several years. If they do decide to leave, however, they may not be able to take all of the money with them, depending on the plan’s vesting schedule. Although Dr. Jones’ total contribution liability is $58,000, 69% of that contribution goes into his own account. Not bad!

    30. Profit Sharing Plan benefits Business owner can save up to $40,000 per year May exclude part-time employees Provides contribution flexibility Offers vesting schedule Can be offered along with a 401(k) Very attractive to prospective employees Can allow for loans The previous example, as you just saw, offers a number of special advantages. First, it allows the business owner to put away up to $40,000 per year toward his or her own retirement. And, the plan may allow you to exclude part-time employees, so if you have a number of part-timers, it’s much more attractive than a SEP. The flexibility of Profit Sharing plan contributions is also an advantage. A key advantage of Profit Sharing plans over a SEP is the vesting schedule. If you’re going to make contributions for your employees, you probably want them to stay around for a while. The vesting schedule provides them with an incentive — if they leave the company, they may forfeit all or a portion of the contributions you have made on their behalf. Also note again that a Profit Sharing can be combined with a 401(k) plan, which would allow employees to make their own contributions toward their retirement. We’ll talk more about 401(k) plans in a minute. As you can imagine, the Profit Sharing plan is very attractive to new and prospective employees. And now, with EGTRRA’s changes, even business owners can take loans from their plan account.The previous example, as you just saw, offers a number of special advantages. First, it allows the business owner to put away up to $40,000 per year toward his or her own retirement. And, the plan may allow you to exclude part-time employees, so if you have a number of part-timers, it’s much more attractive than a SEP. The flexibility of Profit Sharing plan contributions is also an advantage. A key advantage of Profit Sharing plans over a SEP is the vesting schedule. If you’re going to make contributions for your employees, you probably want them to stay around for a while. The vesting schedule provides them with an incentive — if they leave the company, they may forfeit all or a portion of the contributions you have made on their behalf. Also note again that a Profit Sharing can be combined with a 401(k) plan, which would allow employees to make their own contributions toward their retirement. We’ll talk more about 401(k) plans in a minute. As you can imagine, the Profit Sharing plan is very attractive to new and prospective employees. And now, with EGTRRA’s changes, even business owners can take loans from their plan account.

    31. Profit Sharing Plan disadvantages Completely employer-funded Requires a TPA Requires IRS tax return filing May be expensive to fund and maintain Of course, there are some disadvantages. First, unless you add a 401(k) arrangement, the Profit Sharing is a completely employer-funded plan. Many larger employers want their employees to share some of the responsibility for their retirement. As with most qualified plans, the Profit Sharing Plan requires a TPA to handle plan administration — such as testing, reporting, and monitoring of vesting. While a TPA takes the administrative burden off your hands, the TPA’s services are not free! The TPA’s fees, however, may be considered a tax-deductible expense for your business. You will also have to file an IRS Form 5500 for your plan. With the employer contributions and TPA services, these plans may be expensive for your business to fund and maintain. If, for your business, this disadvantage outweighs the potential benefits, you may want to consider establishing an employee-funded plan such as a 401(k). Of course, there are some disadvantages. First, unless you add a 401(k) arrangement, the Profit Sharing is a completely employer-funded plan. Many larger employers want their employees to share some of the responsibility for their retirement. As with most qualified plans, the Profit Sharing Plan requires a TPA to handle plan administration — such as testing, reporting, and monitoring of vesting. While a TPA takes the administrative burden off your hands, the TPA’s services are not free! The TPA’s fees, however, may be considered a tax-deductible expense for your business. You will also have to file an IRS Form 5500 for your plan. With the employer contributions and TPA services, these plans may be expensive for your business to fund and maintain. If, for your business, this disadvantage outweighs the potential benefits, you may want to consider establishing an employee-funded plan such as a 401(k).

    32. Profit Sharing Plans Ideal for smaller, closely-held companies Profit Sharing Plans are ideal for smaller, closely-held companies. Remember that a Profit Sharing Plan allows for maximum contributions and maximum tax deductions for the business. But, generally speaking, if your company has more than 25 employees who will be eligible, you will probably find that a either of these arrangements is too expensive. Any questions?Profit Sharing Plans are ideal for smaller, closely-held companies. Remember that a Profit Sharing Plan allows for maximum contributions and maximum tax deductions for the business. But, generally speaking, if your company has more than 25 employees who will be eligible, you will probably find that a either of these arrangements is too expensive. Any questions?

    33. One(k) plan Owner-only businesses with no full-time employees other than a spouse Sole proprietorships, Partnerships, C-Corporations, S-Corporations Set aside up to $40,000 Pre-tax salary deferrals up to $12,000 Employer contributions, tax deductible up to 25% of compensation $2,000 catch-up contribution if age 50 + Loans and hardship withdrawals Here’s an option for those of you who are self-employed and have no employees: it is now possible to have a 401(k) plan for owner-only businesses without running into testing problems. This is because of new tax laws that allow the employer to make safe harbor contributions to plan participants — in this case the owner him/herself — whereby the plan is deemed to have satisfied the testing requirements. The One(k) is available to owner-only businesses with no full-time employees other than a spouse — including sole proprietorships, partnerships, C-corporations and S-corporations. It allows the owner to set aside up to $40,000 for retirement, plus catch-up contributions if age 50 or over. And, you can access your savings through loans and hardship withdrawals, just like a regular 401(k), which we’ll discuss in a moment. If the business owner already has assets in other types of retirement vehicles, and is interested in setting up a One(k) to take advantage of its high maximum contributions, be aware that you can easily consolidate retirement assets in a One(k) through rollovers. Here’s an option for those of you who are self-employed and have no employees: it is now possible to have a 401(k) plan for owner-only businesses without running into testing problems. This is because of new tax laws that allow the employer to make safe harbor contributions to plan participants — in this case the owner him/herself — whereby the plan is deemed to have satisfied the testing requirements. The One(k) is available to owner-only businesses with no full-time employees other than a spouse — including sole proprietorships, partnerships, C-corporations and S-corporations. It allows the owner to set aside up to $40,000 for retirement, plus catch-up contributions if age 50 or over. And, you can access your savings through loans and hardship withdrawals, just like a regular 401(k), which we’ll discuss in a moment. If the business owner already has assets in other types of retirement vehicles, and is interested in setting up a One(k) to take advantage of its high maximum contributions, be aware that you can easily consolidate retirement assets in a One(k) through rollovers.

    34. Why One(k)? Here’s an example of why a business owner might prefer a One(k). Suppose Sam Fletcher is a self-employed consultant with no employees and a net income of $150,000. Now, as we’ve seen, the maximum contribution to a SEP, Profit Sharing, and One(k) is $40,000. But in Sam’s case, his SEP and Profit Sharing contributions would be limited by other IRS rules, so he’s better off with the One(k). Although each individual’s situation is different, and you should consult your own tax advisor for details, many people could find themselves in a similar situation. If you are an owner-only business seeking to maximize tax-advantaged retirement contributions, One(k) might be an excellent choice. Of course a trade-off is that a One(k) does require plan administration — that means paying a TPA — and IRS reporting, unlike a SEP. And, remember that it is only available to business owners with no full-time employees other than a spouse. Here’s an example of why a business owner might prefer a One(k). Suppose Sam Fletcher is a self-employed consultant with no employees and a net income of $150,000. Now, as we’ve seen, the maximum contribution to a SEP, Profit Sharing, and One(k) is $40,000. But in Sam’s case, his SEP and Profit Sharing contributions would be limited by other IRS rules, so he’s better off with the One(k). Although each individual’s situation is different, and you should consult your own tax advisor for details, many people could find themselves in a similar situation. If you are an owner-only business seeking to maximize tax-advantaged retirement contributions, One(k) might be an excellent choice. Of course a trade-off is that a One(k) does require plan administration — that means paying a TPA — and IRS reporting, unlike a SEP. And, remember that it is only available to business owners with no full-time employees other than a spouse.

    35. 401(k) plan Funded with employee contributions 0% to 100% of compensation Capped at $12,000 $2,000 catch-up contribution if age 50+ Contributions at the employer’s discretion Eligibility 1 year of service (1,000 hours) Age 21 And now for the regular 401(k) plan. You’ve probably heard more about 401(k) plans than any other plan type. It’s certainly one of the most popular options — currently, there is more than $1 trillion invested in 401(k) plans. But is it the right plan for everyone? Let’s take a closer look. A 401(k) is a salary deferral arrangement. It is funded primarily through pre-tax employee contributions. Typically, employees — including yourself — can contribute up to 100% of compensation, capped at $12,000 for 2003. Your plan, however, can set lower limits to keep the plan from having testing problems. Also, individuals age 50 and over may now make up to $2,000 in “catch-up” contributions. The 401(k) plan is the only salary deferral plan that doesn’t require some sort of employer contribution, unless you choose to have what is called a “Safe Harbor 401(k) plan,” which we’ll get to in a minute. As with the other qualified plans, you may limit eligibility to those employees with at least one year of service and are at least 21 years old. The 401(k) is also one of the most flexible plan types, and that’s one of the reasons for its popularity with both employees and employers…And now for the regular 401(k) plan. You’ve probably heard more about 401(k) plans than any other plan type. It’s certainly one of the most popular options — currently, there is more than $1 trillion invested in 401(k) plans. But is it the right plan for everyone? Let’s take a closer look. A 401(k) is a salary deferral arrangement. It is funded primarily through pre-tax employee contributions. Typically, employees — including yourself — can contribute up to 100% of compensation, capped at $12,000 for 2003. Your plan, however, can set lower limits to keep the plan from having testing problems. Also, individuals age 50 and over may now make up to $2,000 in “catch-up” contributions. The 401(k) plan is the only salary deferral plan that doesn’t require some sort of employer contribution, unless you choose to have what is called a “Safe Harbor 401(k) plan,” which we’ll get to in a minute. As with the other qualified plans, you may limit eligibility to those employees with at least one year of service and are at least 21 years old. The 401(k) is also one of the most flexible plan types, and that’s one of the reasons for its popularity with both employees and employers…

    36. 401(k) plan — flexibility Flexible features Discretionary or fixed employer match Profit Sharing contributions Variety of vesting schedules Employees choose contribution rate and investments Loans Hardship withdrawals The employer may choose whether or not to make contributions to the 401(k) plan, and decide how the contribution will be made. For example, the employer may make a matching contribution, like in a SIMPLE-IRA plan. A matching contribution provides a powerful incentive for employees to participate in the plan. The match can be discretionary — meaning the employer decides each year what the match will be — or fixed — meaning the employer commits to a specific matching formula for each and every year. While the discretionary match is more convenient for the employer, the fixed match is more tangible to employees and may be more likely to raise participation rates. The matching contribution may also be used to relieve top-heavy requirements. As I mentioned earlier, you can also make an annual Profit Sharing contribution. You are never obligated to make a contribution, but you may use the contribution to reward employees for a successful year. Keep in mind that total employer contributions — matching and/or profit sharing — on behalf of any employee cannot exceed the lesser of 100% of compensation or $40,000. If you do decide to make an employer contribution, a vesting schedule can provide incentive for employees to remain with your company — possibly up to seven years — in order to “own” your contributions. The flexibility of 401(k) plans is also attractive to employees. They can choose their own salary deferral amount, select their investment mix, and make changes to these as the plan permits. For those employees who are uncomfortable tying up money they may need before retirement, the 401(k) plan may offer loans, and allow “hardship withdrawals.” Many employers find that when they offer these features, more employees join the plan and contribute at higher rates because they know they can access their money in times of need.The employer may choose whether or not to make contributions to the 401(k) plan, and decide how the contribution will be made. For example, the employer may make a matching contribution, like in a SIMPLE-IRA plan. A matching contribution provides a powerful incentive for employees to participate in the plan. The match can be discretionary — meaning the employer decides each year what the match will be — or fixed — meaning the employer commits to a specific matching formula for each and every year. While the discretionary match is more convenient for the employer, the fixed match is more tangible to employees and may be more likely to raise participation rates. The matching contribution may also be used to relieve top-heavy requirements. As I mentioned earlier, you can also make an annual Profit Sharing contribution. You are never obligated to make a contribution, but you may use the contribution to reward employees for a successful year. Keep in mind that total employer contributions — matching and/or profit sharing — on behalf of any employee cannot exceed the lesser of 100% of compensation or $40,000. If you do decide to make an employer contribution, a vesting schedule can provide incentive for employees to remain with your company — possibly up to seven years — in order to “own” your contributions. The flexibility of 401(k) plans is also attractive to employees. They can choose their own salary deferral amount, select their investment mix, and make changes to these as the plan permits. For those employees who are uncomfortable tying up money they may need before retirement, the 401(k) plan may offer loans, and allow “hardship withdrawals.” Many employers find that when they offer these features, more employees join the plan and contribute at higher rates because they know they can access their money in times of need.

    37. 401(k) benefits — participants Pre-tax salary deferrals up to $12,000 (plus catch-up) Additional employer contributions permitted Employee-directed investments A 401(k) plan offers unique benefits… First, as a participant, you may be able to contribute as much as $12,000 toward your retirement each year on a pre-tax basis -- $14,000 if you’re over age 50. Matching and profit sharing contributions can raise your annual savings significantly. And, each participant may direct his or her own investments.A 401(k) plan offers unique benefits… First, as a participant, you may be able to contribute as much as $12,000 toward your retirement each year on a pre-tax basis -- $14,000 if you’re over age 50. Matching and profit sharing contributions can raise your annual savings significantly. And, each participant may direct his or her own investments.

    38. 401(k) benefits — employer Shifts funding responsibility to employees May exclude part-time employees Provides highest degree of flexibility Popular and well-known among employees Now available to sole proprietors who want to maximize their contributions And, as the employer… A 401(k) allows you to shift to your employees responsibility for funding retirement savings. This allows employees to accumulate considerable retirement savings, with less cost to you. And, as with all qualified plans, you may be able to exclude part-time employees. So there is no need to worry about the part-timers who aren’t likely to save very much within the plan anyway. As we just discussed, a 401(k) allows you maximum flexibility with favorable plan features that are popular with both employers and employees. And, a 401(k) plan is probably the plan your employees are most likely to have heard about in the popular media. So it’s likely that employees will understand and appreciate this employee benefit more than any other. A quick note to those who are self-employed and have no employees: it is now possible to have a 401(k) plan for yourself without running into testing problems. This is because of new tax laws that allow you to make safe harbor contributions to plan participants — in this case yourself — whereby the plan is deemed to have satisfied the testing requirements. If this is of interest to you, I would be happy to discuss this type of plan after the meeting.And, as the employer… A 401(k) allows you to shift to your employees responsibility for funding retirement savings. This allows employees to accumulate considerable retirement savings, with less cost to you. And, as with all qualified plans, you may be able to exclude part-time employees. So there is no need to worry about the part-timers who aren’t likely to save very much within the plan anyway. As we just discussed, a 401(k) allows you maximum flexibility with favorable plan features that are popular with both employers and employees. And, a 401(k) plan is probably the plan your employees are most likely to have heard about in the popular media. So it’s likely that employees will understand and appreciate this employee benefit more than any other. A quick note to those who are self-employed and have no employees: it is now possible to have a 401(k) plan for yourself without running into testing problems. This is because of new tax laws that allow you to make safe harbor contributions to plan participants — in this case yourself — whereby the plan is deemed to have satisfied the testing requirements. If this is of interest to you, I would be happy to discuss this type of plan after the meeting.

    39. 401(k) disadvantages Testing may limit contributions of higher-paid High employee participation is a must Employer contribution may be necessary TPA required More fiduciary responsibility The 401(k) does have some disadvantages. First and foremost is plan testing. 401(k) plans must be tested to make sure that the plan is not benefiting higher-paid employees over the lower-paid. If your lower-paid employees do not participate or contribute enough, the salary deferrals of higher-paid employees will be limited. While these tests were simplified by recent tax law changes, they were by no means eliminated or trivialized. That’s why it is imperative that employees — particularly the lower-paid ones — participate in the plan. The plan will be of little benefit to you if you and your key employees can’t put away a significant amount of money. That’s where a matching contribution comes in. If you offer to match — say, 25 cents for every dollar the employee contributes — you’re likely to get many more people interested in the plan. For employees, it’s like getting an immediate 25% return on contributions! You can also raise participation rates significantly by effectively educating your employees about investing and the need to save for retirement. You should look for a 401(k) plan service provider that assists you with participant education. The trade-off for the 401(k) plan’s flexibility is that it requires testing and reporting. So, you will need a TPA. The TPA is an integral part of a successful 401(k) program, because it handles participant loans and hardship withdrawals, and tracks the vesting of employer contributions. The TPA will be an additional out-of-pocket expense, but many employers find it’s well worth it because of the 401(k) plan’s features. Finally, as the plan sponsor you are choosing the investment menu available to your employees, so you are subject to some degree of fiduciary liability. The 401(k) does have some disadvantages. First and foremost is plan testing. 401(k) plans must be tested to make sure that the plan is not benefiting higher-paid employees over the lower-paid. If your lower-paid employees do not participate or contribute enough, the salary deferrals of higher-paid employees will be limited. While these tests were simplified by recent tax law changes, they were by no means eliminated or trivialized. That’s why it is imperative that employees — particularly the lower-paid ones — participate in the plan. The plan will be of little benefit to you if you and your key employees can’t put away a significant amount of money. That’s where a matching contribution comes in. If you offer to match — say, 25 cents for every dollar the employee contributes — you’re likely to get many more people interested in the plan. For employees, it’s like getting an immediate 25% return on contributions! You can also raise participation rates significantly by effectively educating your employees about investing and the need to save for retirement. You should look for a 401(k) plan service provider that assists you with participant education. The trade-off for the 401(k) plan’s flexibility is that it requires testing and reporting. So, you will need a TPA. The TPA is an integral part of a successful 401(k) program, because it handles participant loans and hardship withdrawals, and tracks the vesting of employer contributions. The TPA will be an additional out-of-pocket expense, but many employers find it’s well worth it because of the 401(k) plan’s features. Finally, as the plan sponsor you are choosing the investment menu available to your employees, so you are subject to some degree of fiduciary liability.

    40. Safe Harbor 401(k) Employer MUST make a 4% matching or 3% nonelective contribution 100% immediate vesting No discrimination or top-heavy testing Allows higher paid employees to maximize contribution amounts One way to avoid testing problems is by establishing a Safe Harbor 401(k) plan. If your firm has highly-compensated employees whose deferrals have been or would be limited by discrimination testing, consider a Safe Harbor 401(k). This plan allows you to avoid discrimination and top-heavy testing provided you make a 3% nonelective contribution (to all eligible employees) or a 4% matching contribution. Keep in mind that these mandatory employer contributions are 100% immediately vested to the employee.One way to avoid testing problems is by establishing a Safe Harbor 401(k) plan. If your firm has highly-compensated employees whose deferrals have been or would be limited by discrimination testing, consider a Safe Harbor 401(k). This plan allows you to avoid discrimination and top-heavy testing provided you make a 3% nonelective contribution (to all eligible employees) or a 4% matching contribution. Keep in mind that these mandatory employer contributions are 100% immediately vested to the employee.

    41. 401(k) Plans Ideal for larger companies that want flexibility and employee contributions. Employees must be willing to participate in the plan. So, once again, the bottom line: A 401(k) plan is ideal for larger companies that want a full-featured, flexible, and primarily employee-funded plan. For smaller companies — especially those with fewer than 25 employees — a regular 401(k) plan is likely to run into testing problems. Either a Safe Harbor 401(k) plan or a SIMPLE-IRA might be better options. Also, employees must be willing to participate in the plan. If you have a large number of employees who will be eligible, but who you think won’t be interested in the plan, you can expect to have testing problems, and making contributions to them may become costly. Any company that has more than 75 employees will probably be better off with a 401(k) rather than a SIMPLE-IRA. SIMPLEs are limited to companies with fewer than 100 employees — even if you only have 75 employees, you may reach 100 employees before you know it.So, once again, the bottom line: A 401(k) plan is ideal for larger companies that want a full-featured, flexible, and primarily employee-funded plan. For smaller companies — especially those with fewer than 25 employees — a regular 401(k) plan is likely to run into testing problems. Either a Safe Harbor 401(k) plan or a SIMPLE-IRA might be better options. Also, employees must be willing to participate in the plan. If you have a large number of employees who will be eligible, but who you think won’t be interested in the plan, you can expect to have testing problems, and making contributions to them may become costly. Any company that has more than 75 employees will probably be better off with a 401(k) rather than a SIMPLE-IRA. SIMPLEs are limited to companies with fewer than 100 employees — even if you only have 75 employees, you may reach 100 employees before you know it.

    42. Selecting Your Plan Now that you’re all experts on retirement plans, let’s get to the reason you’re really here: to select the most appropriate plan for your business. If you’re a little confused right now, don’t worry. I’m here to help you analyze your needs and your unique situation in order to select the right plan for your company. Now that you’re all experts on retirement plans, let’s get to the reason you’re really here: to select the most appropriate plan for your business. If you’re a little confused right now, don’t worry. I’m here to help you analyze your needs and your unique situation in order to select the right plan for your company.

    43. Keep in mind… Everything is a trade-off when selecting a plan You derive the same or greater benefits than your employees Having a plan is well worth it There is a plan out there that’s right for you Here are a couple of things keep in mind… First, everything is a trade-off. The SIMPLE-IRA, for example, is very easy and low-cost, but it isn’t as flexible as a 401(k). A SEP doesn’t require a TPA, but it doesn’t allow for a vesting schedule either. So you’ll need to think about which plan features are most important to you, and which you can do without. We’ve talked a lot about employer contributions, and testing and reporting requirements. So you may begin to wonder why you’d want to take on the extra burden of offering a retirement plan. The answer is that your retirement plan gives you the same, if not greater benefits, than it does to your employees. Since you, as the business owner, are most likely the highest-paid person at your company, you usually receive a higher contribution than your employees in dollar terms. If you make an employer contribution to your employees, you make one to yourself as well. If your employees defer a portion of their salaries, so can you. Company-sponsored retirement plans give you the ability to save more for retirement than in a personal IRA, and you are likely to reap more tax advantages. And, there are always tax deductions for your business. So in almost all cases, having a plan is well worth it. Remember, no matter what your business structure, there is a plan out there for you. We can work through your personal and professional objectives, and analyze the characteristics of your business to determine which plan is most appropriate. Keep in mind your business’ characteristics, your objectives, and the plan features most important to you.Here are a couple of things keep in mind… First, everything is a trade-off. The SIMPLE-IRA, for example, is very easy and low-cost, but it isn’t as flexible as a 401(k). A SEP doesn’t require a TPA, but it doesn’t allow for a vesting schedule either. So you’ll need to think about which plan features are most important to you, and which you can do without. We’ve talked a lot about employer contributions, and testing and reporting requirements. So you may begin to wonder why you’d want to take on the extra burden of offering a retirement plan. The answer is that your retirement plan gives you the same, if not greater benefits, than it does to your employees. Since you, as the business owner, are most likely the highest-paid person at your company, you usually receive a higher contribution than your employees in dollar terms. If you make an employer contribution to your employees, you make one to yourself as well. If your employees defer a portion of their salaries, so can you. Company-sponsored retirement plans give you the ability to save more for retirement than in a personal IRA, and you are likely to reap more tax advantages. And, there are always tax deductions for your business. So in almost all cases, having a plan is well worth it. Remember, no matter what your business structure, there is a plan out there for you. We can work through your personal and professional objectives, and analyze the characteristics of your business to determine which plan is most appropriate. Keep in mind your business’ characteristics, your objectives, and the plan features most important to you.

    44. J. & W. Seligman & Co. Incorporated Investment business since 1864 Launched its first mutual fund in 1930 Approximately $18 billion in assets under management Once you’ve decided which plan works best for your business, you face another series of challenges. You’ll want to make sure you thoroughly understand the plan you’re offering to your employees and that it meets all legal requirements. You’ll want to know that you can get the plan up and running smoothly, and that you can communicate the benefits of the plan to your employees. For all of this, you’ll need an experienced service provider to help. That’s why I’d like to talk a little bit about Seligman. J. &W. Seligman & Co. Incorporated, established in 1864, has a distinguished history of providing financial services and managing investments prudently for long-term growth. Today, Seligman provides investment management and advisory services to individuals and institutions worldwide, including a mutual funds that offer a variety of equity, global equity, and fixed income options. Investment teams utilize Seligman's extensive research capabilities and a disciplined approach to ensure that funds are managed true to style. Seligman began managing its first mutual fund, known today as Seligman Common Stock Fund, in 1930. In the decades that followed, Seligman has continued to offer forward-looking investment solutions for to help investors seek their financial goals. Today, Seligman has approximately $18 billion in assets under management. Once you’ve decided which plan works best for your business, you face another series of challenges. You’ll want to make sure you thoroughly understand the plan you’re offering to your employees and that it meets all legal requirements. You’ll want to know that you can get the plan up and running smoothly, and that you can communicate the benefits of the plan to your employees. For all of this, you’ll need an experienced service provider to help. That’s why I’d like to talk a little bit about Seligman. J. &W. Seligman & Co. Incorporated, established in 1864, has a distinguished history of providing financial services and managing investments prudently for long-term growth. Today, Seligman provides investment management and advisory services to individuals and institutions worldwide, including a mutual funds that offer a variety of equity, global equity, and fixed income options. Investment teams utilize Seligman's extensive research capabilities and a disciplined approach to ensure that funds are managed true to style. Seligman began managing its first mutual fund, known today as Seligman Common Stock Fund, in 1930. In the decades that followed, Seligman has continued to offer forward-looking investment solutions for to help investors seek their financial goals. Today, Seligman has approximately $18 billion in assets under management.

    45. Seligman Retirement Services Focus on serving the retirement needs of small business owners Full product line: Comprehensive, cost-competitive 401(k) One(k) for owner-only businesses Profit Sharing Plans No-fee, easy-to-establish SIMPLE-IRA and SEP programs Time Horizon MatrixSM Seligman offers a broad array of investment choices, suitable for retirement plan participants with different investment time horizons. In addition, Seligman is experienced in and focused on serving the retirement plan needs of small business owners like yourselves. Seligman’s retirement plan products for small businesses include: A full 401(k) program, complete with a low-cost third party administrator and customized, ongoing employee education to help communicate the plan’s benefits to your employees. This includes an affordable One(k) program for owner-only businesses. Profit Sharing program, complete with a third party administrator, if you need one. An easy-to-establish SEP and a no-fee SIMPLE-IRA. You will have a personal contact at Seligman to answer any questions you may have, and your employees will not pay an account fee to hold their IRAs at Seligman. We also offer a unique asset allocation and risk-management strategy for retirement plan participants — Time Horizon Matrix.Seligman offers a broad array of investment choices, suitable for retirement plan participants with different investment time horizons. In addition, Seligman is experienced in and focused on serving the retirement plan needs of small business owners like yourselves. Seligman’s retirement plan products for small businesses include: A full 401(k) program, complete with a low-cost third party administrator and customized, ongoing employee education to help communicate the plan’s benefits to your employees. This includes an affordable One(k) program for owner-only businesses. Profit Sharing program, complete with a third party administrator, if you need one. An easy-to-establish SEP and a no-fee SIMPLE-IRA. You will have a personal contact at Seligman to answer any questions you may have, and your employees will not pay an account fee to hold their IRAs at Seligman. We also offer a unique asset allocation and risk-management strategy for retirement plan participants — Time Horizon Matrix.

    46. The next steps… Assess your goals and situation Ask questions Look for consultative advice Find the plan that works for you I hope I’ve convinced you that a retirement plan is worthwhile for your business. The next steps are: to assess your goals and situation; ask questions about your plan options; seek the consultative advice of experts; and find the plan that’s right for you. I’d like to help. I’m available to consult with you individually about your business situation, your goals, and any special concerns you face. I’m sure you have plenty of questions about the retirement plans we’ve covered tonight (today). Together with the Retirement Plan Specialists at Seligman, I can give you answers. I can also offer you Seligman’s consultative, customized 401(k) plan proposal, at no obligation. Or, we may be able to show you that a SIMPLE-IRA or a SEP is more appropriate for your situation and your goals for the plan. As I said before, there is a plan out there for you!I hope I’ve convinced you that a retirement plan is worthwhile for your business. The next steps are: to assess your goals and situation; ask questions about your plan options; seek the consultative advice of experts; and find the plan that’s right for you. I’d like to help. I’m available to consult with you individually about your business situation, your goals, and any special concerns you face. I’m sure you have plenty of questions about the retirement plans we’ve covered tonight (today). Together with the Retirement Plan Specialists at Seligman, I can give you answers. I can also offer you Seligman’s consultative, customized 401(k) plan proposal, at no obligation. Or, we may be able to show you that a SIMPLE-IRA or a SEP is more appropriate for your situation and your goals for the plan. As I said before, there is a plan out there for you!

    47. For more complete information about Seligman Mutual Funds, including prospectuses that contain information, about risks, fees, and expenses, please contact your financial advisor. Investors should read the prospectus for a Seligman Mutual Fund carefully before investing or sending money. Seligman does not provide tax or legal advice. The information contained herein is for educational purposes only and is not a substitute for consultation with your professional tax or legal advisor. Required Disclosure For more complete information about Seligman Mutual Funds, including prospectuses that contain more complete information, including details about investment policies, risks, fees, and expenses, please contact your financial advisor. Investors should read the prospectus for a Seligman Mutual Fund carefully before investing or sending money. Seligman does not provide tax or legal advice. The information contained herein is for educational purposes only and is not a substitute for consultation with your professional tax or legal advisor.Required Disclosure For more complete information about Seligman Mutual Funds, including prospectuses that contain more complete information, including details about investment policies, risks, fees, and expenses, please contact your financial advisor. Investors should read the prospectus for a Seligman Mutual Fund carefully before investing or sending money. Seligman does not provide tax or legal advice. The information contained herein is for educational purposes only and is not a substitute for consultation with your professional tax or legal advisor.

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