By Holly Bander, CEBS, APM, Shareholder, Employee Benefit Resources
If your organization is looking to establish a retirement plan for its employees, or if you already have a plan but wonder if it’s a good fit, it’s important to remember you have many choices. For a chart summarizing important characteristics of the most common retirement plans, click here. In reviewing the chart, here are some questions to ask yourself:
- Do you want something simple or do you want as many bells and whistles as possible? IRA-based plans are simpler, but more limited.
- Do you want to permit employee contributions? If so, do you want them to be as high as possible? SIMPLE plans have lower deferral thresholds. 403(b) plans have no nondiscrimination requirements for deferrals, but 401(k) plans do.
- Are you willing to commit to an employer contribution or do you want it to be discretionary each year? SIMPLE plans, money purchase plans, defined benefit plans and safe harbor 401(k)/403(b) plans all have required contributions. Most other plan types have discretionary contributions.
- Do you have highly compensated employees (those with compensation in excess of $115,000 a year, indexed)? If not, then you don’t need to be concerned about nondiscrimination testing.
- Do you want to have a service requirement for an employee to be eligible? Different plan types permit different eligibility requirements.
- Do you want to have an annual service or employment requirement to receive employer contributions? IRA-based plans don’t allow such requirements; most other plan types do.
- Do you want to have a vesting schedule? They’re not permitted with IRA-based plans, but most other plans types can have them.
- How much can you afford for contributions, plan document costs, annual administration costs, etc.? The more complex the plan, the more expensive it is to establish and administer.
With all of the choices available, it’s easy to feel overwhelmed. That’s where a professional advisor comes in handy. He or she can help you sort through the choices and choose the retirement plan that’s right for your organization. Contact Holly Bander, Shareholder, by email or at 406.449.5500 to make an appointment.