Retirement Plan Case Study

Retirement Plan Questions.

Unsure of which plan was the best fit for their company.

Smith Schafer Approach

A client came to us looking for help in establishing a RETIREMENT PLAN for his business. His company has 40 part-time employees and only three full-time employees, two of which are he and his wife. He asked about the company’s best retirement plan options and himself as an employee saving for retirement.

We discussed a few different retirement plan options with our client. The 401(k) plan is the most well-known, but it is also the most costly since there are additional administrative requirements to set up and maintain the plan. A SEP plan is much easier to set up and operate, and the administrative costs are low, but only the employer can contribute to a SEP plan. Also, the employer is required to contribute equally to all employees.

After some discussion, we recommended this business establish a SIMPLE plan. SIMPLE plans do not have the start-up and operating costs of a conventional retirement plan, so they are more economical for a small business. These plans allow employees to contribute, shifting the company’s responsibility for retirement planning to the employee. The company is required to make contributions to a SIMPLE plan, but there are two options available:

• Match employee contributions up to 3 percent
• Make a nonelective 2 percent contribution for all employees

Results

Our client agreed with our recommendation to start a SIMPLE plan. He felt this gave employees, including him, the most flexibility in saving for retirement and the most cost-effective solution for his business.