Small Business Pensions

Get the best retention tool for your small business — peace of mind for your people
By Greg Brown Sooner or later, retirement is upon everyone, ready or not. Small business owners face a double challenge: Finding and keeping people who matter long term to their business, and funding a personal nest egg for the day their own retirement comes.

Although the plans (and obscure government acronyms) are plentiful, the bottom line is:

1. Simplicity for your employees
2. Effective tax treatments for both you and your people
3. Confidence that the plan will work

 

Select a plan that employees can contribute to

Most small businesses that have retirement plans use the type that includes an employee contribution, such as a 401(k).
Try: Review retirement plan pros and cons at the Internal Revenue Service Web site. See plan details in the PDF file of IRS Pub. 560 Retirement Plans for Small Business.

Understand the rules

SEP or SIMPLE? 401(k) or IRA? In an effort to serve many kinds of business entities, the government has created its usual thicket of confusing options. Get a grip first on where your organization fits.
Try: The U.S. Department of Labor, U.S. Chamber of Commerce and the Small Business Administration teamed up to – surprise – simplify things with this short guide (a PDF file) to choosing a plan.

Regulatory concerns for small business

Once you decide to offer a retirement plan, your legal responsibilities to members of the plan kick in, and they can last for a long time.
Try: A quick overview of what's called fiduciary responsibilities under federal law is posted by the U.S. Department of Labor.

See your local banker

Banks have moved into provisioning retirement plans, and you might find that your existing relationships can lead you to the best deal, as well as personal guidance.
Try: Wachovia, Regions, Bank of America, among others, provide access to decision-making tools and articles that can help you sort out options in advance.

Price a national name

Mutual funds sellers have begun to work the small business vineyard too. Don't assume that you don't have enough employees to qualify. Big-name operations run retail branches across the country and most are anxious to roll up small and medium-sized business before the banks get the customers.
Try: Some to consider are Fidelity, Vanguard and Charles Schwab.

Talk to your tax preparer

The government dangles plenty of carrots to both you and your employees to take part in some kind of retirement plan. They know full well that destitute retirees will fall to future taxpayers, so take advantage of the upside offered now.
Try: SmartMoney.com has a good overview of the tax impacts of each kind of plan offered to small businesses.

• So-called defined-benefit plans, what most people mean when they say "pension plan," are more expensive to start and run, but they can offer some advantages. Talk to your accountant in detail on this one.
• Don't put it off. A retirement plan for your employees (and yourself) is a great retention tool and offers tax savings today.
• Carefully consider how much it will cost to operate your plan. A company with only a few dozen employees is far different, cost-wise, than several hundred. When comparing offerings, take into account current headcount and future growth.
• Strangely, employees often fail to join retirement plans. Make sure they understand fully any matching incentives and that your provider is willing to conduct information sessions. Otherwise, the retention aspect is lost.