You may decide to offer your employees the option to participate in some sort of retirement plan. Defined benefit plans require you to set aside the money required to fund a specific level of retirement pay for your employees. Defined contribution plans include a wide range of retirement savings arrangements including the most popular plans for small employers: 401(k) plans, profit sharing plans, simplified employee pensions (SEPs), and savings incentive match plans (SIMPLE plans).
Even with the move toward self-directed retirement savings, you'll need professional advice and guidance to establish, fund, and administer any type of retirement arrangement. (A bank or mutual fund company will do the administrative work for you.) If you establish a plan, make sure you find out about your responsibilities. Even with a plan administrator, you'll have to deal with issues like payroll deductions; employee eligibility; distributions and rollovers; recordkeeping, and reporting and disclosure requirements. And, you still bear ultimate responsibility for seeing that things are done right even with respect to the duties undertaken by the administrator. Finally, many plan administrators have developed web-based applications to simplify plan administration and some accounting software provides functionality that automates administrative activities.
You may have serious reservations about providing retirement benefits because of all the requirements that will be imposed on you. For this reason, if you don't want or need a retirement plan to arrange for your own retirement, retirement plans may not be the best benefit choice for you. There are many other less burdensome benefits that your employees may find more valuable, such as health insurance, time off, or, of course, higher pay.
If you do choose to provide a retirement plan for your employees, consider one of the following low-cost and simple types of plans:
There are many other types of retirement plans, so consult your financial advisor if you think retirement benefits might be right for your business. Finally, note that there are other options, such as nonqualified deferred compensation plans, which offer many options for compensating and retaining special employees.
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