4 Methods How To Help Employees Retire As A Small Business

(doylc.com) How To Help Employees Retire As A Small Business - As a small business owner, you have several options for creating a retirement solution for your employees. Among the most popular options are various Individual Retirement Arrangements (IRAs). Other options include a "defined benefit" plan and "defined contribution" plans. After researching retirement options, you should meet with an accountant and attorney to discuss the impact of the retirement plan on your business.

• Start an IRA plan for your employees

Identify the different types of IRA plans. There are roughly three different types of IRA plans that you can set up for your small business. They are very similar to each other but have a few different folds. Everyone should be easy to manage as a small business owner. The three most common are:

Salary Deduction IRA. Any employer with more than one employee can set up a payroll deduction IRA. You agree on a payroll deduction with the employee and then send the contributions to the IRA. There are no minimum requirements, but maximum contributions per participant are $5,500 for 2016 (or $6,500 if you are 50 years of age or older).

Simplified Employee Pensions (SEP). This plan differs from the payroll deduction IRA in that you, the employer, contribute. The employee does not. You also decide how much you donate each year. If you choose the SEP, you must contribute a consistent percentage of pay for each employee. You can contribute a maximum of $53,000 or 25% of salary, whichever is lower.

SIMPLE IRA plan. If you have 100 or fewer employees, you can set up a SIMPLE IRA. The employee can make deductions and employers must match a certain percentage of the employee's contribution. The maximum an employee can contribute is $12,500 in 2016 (with up to an additional $3,000 if age 50 or over).

Find a financial institution that administers IRAs. The financial institution you contract with will act as the trustee to your plan. It will generally be responsible for depositing your contributions, issuing annual statements, making investment decisions, and submitting required filings to the IRS.

You can find institutions by asking other small businesses that have IRA plans if they would recommend their service provider.

You can also do an internet search. Type "Small Business IRA Providers" into your favorite search engine.

Meet for a consultation. You may already know which IRA plan you want. However, you should still discuss the options with the financial professional who may have advice.

You should also speak to your tax experts and attorneys ahead of time to fully understand the consequences of adopting a retirement plan.

Fill out the paperwork. Typically, you can start an IRA plan by filling out a short form with the financial institution acting as your service provider. You should call ahead and ask what information to bring with you.

When you create a SEP, you must fill out Form 5305-SEP, which is only two pages long.

Get copies of all completed forms for your records.

Provide information to your employees. After you set up the plan, you need to notify your employees. For example, if you are setting up a SEP IRA, provide each employee with a copy of a Form 5305-SEP (or equivalent) and instructions. You must also provide employees with a written statement explaining the following:

Participating employees receive a written report on their employer contributions by January 31 of the following year

The SEP IRA may offer different rates of return and different terms than other IRAs that the employee has

The SEP Administrator will provide a copy of any change within 30 days of the effective date

Monitor the trustee. You should always monitor the trustee to ensure he is fulfilling his duties. You should always review any communications or reports from the Trustee and ask any questions in writing. If an employee has a question about the plan, be sure to contact the employee's financial institution.

Also, make sure the management fees are still reasonable. Request a written justification for fee increases.

Complete the plan if necessary. Your business can grow and change. For example, you might have a SEP plan that's only available if you have 100 or fewer employees. If you grow too large, you may need to switch to a different retirement plan. Contact your financial institution service provider and discuss your options.

If you decide to cancel, you should contact the financial institution and tell them that you will not be making your next contribution and wish to cancel the contract. You should also inform your employees that the plan is being discontinued.

• Creating a defined contribution plan

Find out some basic information about defined contribution plans. Many different plans fall under the umbrella term defined contribution. They differ in the amount that employees can contribute to the plan. They differ from "defined benefit" plans in that they do not guarantee any amount of money in retirement:

profit sharing. You may, at your own discretion, make contributions to a Profit Sharing Plan. However, if you do contribute, you need to find a formula to allocate the contributions to the different participants in the plan. The maximum contribution is 100% of compensation or $53,000 per employee, whichever is lower.

Traditional 401(k). Employees defer a portion of their pay on a pre-tax basis. As an employer, you can choose whether you want to make a grant or another contribution. Employer contributions are generally not taxed until they are distributed. The employee can contribute a maximum of US$18,000 in 2016 (and up to an additional US$6,000 if the employee is 50 years of age or older).

Safe Harbor 401(k). This is an ideal plan if you have high-paying employees whose contributions might be limited under a traditional 401(k). Employees contribute a percentage of their salary and the employer must contribute. The employee can contribute a maximum of $18,000 in 2016 (and up to an additional $6,000 if they are 50 or older).

Automatic registration 401(k). This plan requires employees to opt out if they do not wish to attend. There are also standard contribution rates. Auto-enroll 401(k) plans are ideal if you want high participation and have high-paying employees whose contributions might be limited under a traditional 401(k). The employee can contribute a maximum of $18,000 in 2016 (and up to an additional $6,000 if they are 50 or older).

Meet with a financial expert for more information. You can create a plan yourself. However, you would likely benefit from meeting with a financial institution or a financial professional. These people can help you set up the defined benefit plan and answer your questions.

Adopt a written plan document to create a 401(k). This document describes the day-to-day operations for your plan. If you hire a financial institution or retirement professional, they should provide the plan document for you.

Set up a trust for the assets of the plan. You can't just dump your employee's retirement savings into your savings account. Instead, you must create a trust relationship. The trust manages the assets solely for the benefit of plan participants.

A "trustee" manages the assets of the trust. You should choose this person carefully. If you are making the plan through a reputable financial institution, they should have experience either acting as a trustee or hiring one.

Create a recording system. You must keep proper records that track contributions, income and losses, and plan investments and expenses. A proper record keeping system will help you complete the required reports that need to be filed with the federal government.

The financial institution you work with should have a system of record in place. During your consultation, be sure to ask what kind of records are there.

Inform your employees about the plan. After all, you can't create a 401(k) plan without giving employees the information they need to decide if they want to participate. You should inform your employees of the benefits, characteristics and rights of those who choose to participate.

You must also provide a summary plan description to all employees who enroll in the plan. You usually create this with the plan document.

Monitor the financial institution. Even if you hire a financial institution to create and administer the plan, you still retain certain responsibilities. For example, you must act in the best interests of the plan's participants when selecting and continuing to employ the financial institution. This means that you must continuously monitor the institution:

Always read any reports provided by the financial institution. Contact the institution if you do not understand something.

Check the actual fees charged. Make sure it is the same amount that the institution is asking for.

Always investigate complaints from plan participants. Keep detailed information about the individual's complaints and document how you raised the issue with the financial institution.

Regularly review the performance of the institution. Report your concerns to the facility in writing.

• Creating a performance-based plan

Understand defined benefit plans. With this plan, you guarantee your employees that they will receive a certain, fixed amount of money when they retire. Defined benefit plans are becoming increasingly rare. They also differ from IRAs in a few ways:

A defined benefit plan is the most administratively complex and expensive.

You are generally required to file financial forms with the IRS every year if you have a defined benefit plan.

You will need a registered actuary to determine your funding amount and sign forms you submit to the federal government.

You can generally deposit (and deduct from your taxes) more than other plans.

Meet with a financial advisor. You should find a financial expert to discuss whether creating a defined benefit pension would be ideal or not. You can find financial advisors in the following ways:

Ask other small businesses that have defined benefit plans if they would recommend their financial advisor.

Do an internet search. Type "Defined Benefit Pension Providers" into your favorite search engine. Performance-based services are offered by many of the largest financial institutions such as Wells Fargo and MassMutual.

Fill out the paperwork. The financial advisor should have paperwork for you to fill out to begin the plan. The paperwork can be two pages or 50 pages. The length depends on the financial adviser you work with and the details of the defined benefit plans they have prepared.

• Understand the plan's impact on your business

Meet with an accountant. There are tax benefits to various retirement plans and you should meet with your tax advisor to discuss these. This person can help you figure out which plan is ideal for your small business.

If you've never met with an accountant, get recommendations from other small businesses. If you don't get any referrals, look up accountants in the phone book.

Meet with your attorney. Your attorney can help you understand what obligations you owe your employees in relation to the plan. An attorney can also help answer your questions about what you should do if a disagreement arises between you and the financial institution administering your plan.

To find a qualified attorney, you can get referrals from other small businesses that have retirement plans for their employees.

If you are not getting referrals from anyone in the business community, contact your local or state bar association and ask for a referral to an attorney who works with small businesses. To find your nearest bar association, visit the American Bar Association website.

Ask the people you interview if it's important to offer a retirement plan. If you're not yet convinced to accept a retirement plan, you should try to find out if potential employees think it's important. Some experts believe that by offering a retirement plan, you can hire and retain talented employees.

You can do this discreetly by asking an open-ended question: "What attracted you to the position?" Alternatively, you could have applicants fill out a survey.