Do You Have a Plan For Your Employees?

If you are self-employed or the owner of a small business, you probably understand the difficulties in finding and keeping qualified employees. There are many factors that an employee will consider when deciding where to work. One that may be overlooked is the availability of a tax-qualified retirement plan.

According to a recent survey by the Employee Benefit Research Institute (EBRI), 25 percent of small business owners stated the most important reason for offering a retirement plan was recruiting and retaining employees.  Another 19 percent said the positive effect on employee attitude and performance was the most important reason they offered a plan.

The Simplified Employee Pension (SEP) and Savings Incentive Match Plan for Employees (SIMPLE) plans are two tax-qualified plans available to employers.  If a plan is considered tax-qualified, contributions are not subject to current federal income tax; all earnings grow tax-deferred until withdrawn; and taxes are payable by the participant when benefits are actually received, generally at retirement when the participant may be in a lower tax bracket and entitled to an additional standard deduction at age 65.

Unfortunately, a number of employers are unaware of the tax-qualified retirement plans available. The 2003 Small Employer Retirement Survey conducted by EBRI indicated that 47 percent of business owners had not heard of SEP plans while an additional 26 percent had heard of them but knew little about them. The numbers for SIMPLE plans were 32 percent and 20 percent, respectively.

An advantage of the SEP plan is the ease in establishing and maintaining the plan. Any business with one or more employees, including the owner/employee, may set up a SEP IRA. The plan may be set up by completing IRS Form 5305-SEP and no employer tax filing is required.

As an employer, you decide each year: 
1. Whether you will contribute to the plan, and 
2. If a contribution will be made, the amount of the contribution to each employee’s SEP IRA.  Employees are immediately 100 percent vested in the SEP IRA proceeds.

A SIMPLE IRA is a salary reduction plan with little administrative paperwork. If you have 100 or fewer employees in your business, you are eligible to begin a SIMPLE IRA by completing IRS Form 5305-SIMPLE.

SIMPLE IRAs are funded by employee salary reduction contributions and employer contributions. You, as the employer, can either match the employees’ contributions dollar for dollar up to 3 percent of their salaries, or contribute 2 percent of each eligible employee’s salary. Eligible employees are immediately 100 percent vested.

Employees may take withdrawals from a SEP or SIMPLE IRA at any time. However, they will generally be subject to a 10 percent tax penalty if they are under age 59½ at the time of the withdrawal. The tax penalty increases to 25 percent for SIMPLE IRA withdrawals made during the first two years the employee participates in any SIMPLE IRA.

Finding qualified employees that will stay on the job can be difficult. Fortunately, there are retirement plans available to make your business more attractive to job seekers. Speak with a qualified investment professional to discuss which plan may be appropriate for you.

Let's Talk Life Insurance For Businesses

As a small business owner, you do your best to attract and keep the best employees. One benefit you can offer that may set you apart from other employers is group life insurance coverage.

Providing life insurance coverage for your employees may sound like an expensive proposition, but in reality, the coverage can be very affordable. The national average monthly premium for coverage is $.25 per $1,000 in coverage. Premiums for up to $50,000 coverage for your employees are deductible from your federal income tax and not taxable to your employees.

In addition to the benefit of providing affordable coverage to your employees, there may be other advantages to offering group life insurance. Having group life coverage may help to reduce employee turnover, reducing the costs associated with hiring and training new workers. Benefits such as group life have also been shown to improve morale and loyalty among employees.

Employees can name and change beneficiaries as needed. They may also feel more secure since funds are typically available almost immediately, if they die while covered under the policy.

Something your employees may need, at an affordable price. Contact your insurance agent today to find out more about group life insurance coverage.

Don't forget it's Life Insurance Awareness Month. No better time to make certain your employees are covered.

Do your employees need a 401(k)?

With so much talk about Social Security and the need for retirement planning, there are a number of actions small business owners may take. Establishing a retirement plan for small business employees may sound like a huge undertaking. The reality is that setting up a 401(k) can be easier than you think.

A Safe Harbor 401(k) can be an appropriate solution for businesses with fewer than 100 employees. The Safe Harbor 401(k) Plan allows eligible employees to contribute a portion of their own salary to a retirement plan. Employers contribute either matching or non-elective amounts to the plan on behalf of eligible employees.
Both employer and employee enjoy federal tax advantages of contributing. Those advantages include:

· Employer contributions are tax deductible for the employer -- up to 25% of compensation of all participants.
· Employee elective deferrals are excluded from the employee's income for Federal Income Tax purposes.
· Tax-deferred growth potential is possible -- any investment earnings grow tax-deferred until withdrawn.

One attractive advantage of establishing a Safe Harbor 401(k) plan is that discrimination testing of employee elective deferrals or employer matching contribution limits is not needed. Additionally, each plan participant or beneficiary can request an easily understandable summary plan description within 90 days after they become eligible. A summary annual report may be requested each year within 7 months after the end of each plan year.

There are many reasons you may want to begin a retirement plan for your employees. The ease at which you can establish a Safe Harbor 401(k) could make it an appropriate choice for your small business.